MZI RESOURCES LIMITED For personal use only - ASX RESOURCES LIMITED ACN 077 221 ... Explanatory Statement and the accompanying Independent Expert’s Report ... RCF Funding Package

MZI RESOURCES LIMITED ACN 077 221 722

NOTICE OF GENERAL MEETING

TIME: 10.00 am

DATE: 27 June 2014

PLACE: City West Reception Centre 45 Plaistowe Mews West Perth Western Australia 6005

The Independent Expert has concluded that the funding transactions contemplated under the RCF Funding Package are not fair but reasonable. The Independent Expert has concluded that the provision of security to RCF as part of the RCF Funding Package is fair and reasonable.

This Notice of General Meeting, Explanatory Statement and the accompanying Independent Expert’s Report (which considers the proposed transactions the subject of Resolution 1 to be not fair but reasonable to non-associated shareholders) should each be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting. Should you wish to discuss the matters in this Notice of General Meeting please do not hesitate to contact the Company Secretary on (+61 8) 9328 9800.

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C O N T E N T S P A G E

Notice of General Meeting (setting out the proposed resolutions) 3

Explanatory Statement (explaining the proposed resolutions) 8

Glossary 22

Annexure A – Summary of key terms of RCF Funding Package 24

Annexure B – Independent Expert’s Report 27

Annexure C – Terms and Conditions of RCF Options 28

Annexure D – Terms and Conditions of NED Options 29

Annexure E – Valuation of Options 30

Proxy Form Insert

T I M E A N D P L A C E O F M E E T I N G A N D H O W T O V O T E

VENUE

The General Meeting of the Shareholders to which this Notice of General Meeting relates will be held at 10.00 am (WST) on 27 June 2014 at:

City West Reception Centre 45 Plaistowe Mews West Perth Western Australia 6005 YOUR VOTE IS IMPORTANT

The business of the General Meeting affects your shareholding and your vote is important.

VOTING IN PERSON

To vote in person, attend the General Meeting on the date and at the place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the enclosed Proxy Form and return by the time and in accordance with the instructions set out on the Proxy Form.

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N O T I C E O F G E N E R A L M E E T I N G

Notice is given that a General Meeting of Shareholders will be held at 10.00 am (WST) on 27 June 2014 at The City West Reception Centre, 45 Plaistowe Mews, West Perth, Western Australia 6005.

The Explanatory Statement provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the Proxy Form are part of this Notice of General Meeting.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders at 10.00am (WST) on 27 June 2014. Terms and abbreviations used in this Notice of General Meeting are defined in the Glossary.

A. AGENDA RESOLUTION 1 – APPROVAL OF FUNDING PACKAGE WITH RESOURCE CAPITAL FUND VI L.P.

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That for all relevant purposes (including ASX Listing Rule 10.1 and section 611 item 7 of the Corporations Act 2001 (Cth)), approval is given for the Company and its wholly owned subsidiary, Keysbrook Leucoxene Pty Ltd to enter into and complete the transactions contemplated by the RCF Funding Package with Resource Capital Fund VI L.P. (RCF) described in more detail in the Explanatory Statement, including:

(a) the entry into of the Royalty Purchase, the Convertible Loan Facility and the Bridge Finance Facility by the Company and its wholly owned subsidiary, Keysbrook Leucoxene Pty Ltd;

(b) the Company issuing the Shares and RCF Options to RCF in connection with the RCF Funding Package, including the issue of:

(i) RCF Options (and any Shares on potential exercise of those RCF Options) to RCF as consideration for the Acceptance Fees payable in connection with the Convertible Loan Facility and the Bridge Finance Facility;

(ii) Shares to RCF as consideration for the Establishment Fees payable in connection with the Convertible Loan Facility and the Bridge Finance Facility;

(iii) Shares to RCF in satisfaction of interest payable under the Convertible Loan Facility and the Bridge Finance Facility from time to time if the Company so elects;

(iv) Shares to RCF in satisfaction of any commitment fees that may become payable under the Bridge Finance Facility from time to time if the Company so elects; and

(v) Shares to RCF upon any conversion of amounts owing under the Convertible Loan Facility and, if applicable, any convertible loan facility into which the Bridge Finance Facility may convert into in accordance with its terms;

(c) RCF and its associates potentially increasing their voting power in the Company to a maximum of 73.9%; and

(d) the Company granting security in favour of RCF in accordance with the terms and conditions of the RCF Funding Package.”

Voting Exclusion: In accordance with section 611, item 7 of the Corporations Act and the ASX Listing Rules, Resource Capital Fund VI L.P. and its associates are excluded from voting on Resolution 1 and the Company will disregard any votes cast on Resolution 1 by Resource Capital Fund VI L.P. and any of its associates.

However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

RESOLUTION 2 – APPROVAL TO CONVERT PORTION OF RCF INTERIM LOAN FACILITY INTO SHARES To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That Shareholders authorise the issue of Shares to RCF upon conversion of US$1,000,000 owing under the RCF Interim Loan Facility, for the purpose of Listing Rule 7.1 (or for the purposes of Listing Rule 7.4 if those Shares are issued prior to the Meeting) and for all other purposes, on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 2 by RCF and any person who might obtain a benefit except solely in the capacity of a holder of ordinary securities, if the resolution is passed, and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

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RESOLUTION 3 – APPROVAL TO ISSUE SHARES TO RCF IN PAYMENT OF EXTENSION FEES To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That Shareholders authorise the issue of Shares to RCF in payment of US$105,000 in extension fees associated with the RCF Interim Loan Facility, for the purpose of Listing Rule 7.1 (or for the purposes of Listing Rule 7.4 if those Shares are issued prior to the Meeting) and for all other purposes, on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 3 by RCF and any person who might obtain a benefit except solely in the capacity of a holder of ordinary securities, if the resolution is passed, and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

RESOLUTION 4 – ISSUE OF SHARE UNITS TO PETER GAZZARD UNDER THE EMPLOYEE SHARE TRUST PLAN To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That, for the purpose of ASX Listing Rule 10.14 and for all other purposes, approval be given for the issue to Mr Peter Gazzard, and/or his nominee, under the Employee Share Trust Plan of:

(a) up to $302,540 of Share Units; and

(b) the issue, and subsequent acquisition by Mr Gazzard, of Shares in the Company in respect of those Share Units,

in accordance with the terms of the Employee Share Trust Plan and on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 4 by a Director of the Company (and any associates of such a Director), except one who is ineligible to participate in any employee incentive scheme in relation to the Company. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Voting Prohibition Statement: Under section 224 of the Corporations Act, a vote on this resolution must not be cast in any capacity by Mr Gazzard or any of his associates. However, this does not prevent Mr Gazzard or any of his associates from casting a vote as a proxy appointed by writing that specifies how the proxy is to vote on the resolution and is not cast on behalf of any person prohibited from voting on the resolution. Further, a person appointed as a proxy must not vote on the basis of that appointment on Resolution 4 if:

(a) the proxy is either:

(i) a member of the Key Management Personnel; or

(ii) a Closely Related Party of a member of the Key Management Personnel; and

(b) the appointment does not specify the way the proxy is to vote on Resolution 4.

However, the above prohibition does not apply if:

(c) the proxy is the Chair of the Meeting; and

(d) the appointment expressly authorises the Chair to exercise the proxy even if Resolution 4 is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

RESOLUTION 5 – ISSUE OF SHARE UNITS TO KEITH VULETA UNDER THE EMPLOYEE SHARE TRUST PLAN To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That, for the purpose of ASX Listing Rule 10.14 and for all other purposes, approval be given for the issue to Mr Keith Vuleta, and/or his nominee, under the Employee Share Trust Plan of:

(a) up to $302,540 of Share Units; and

(b) the issue, and subsequent acquisition by Mr Vuleta, of Shares in the Company in respect of those Share Units,

in accordance with the terms of the Employee Share Trust Plan and on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 5 by a Director of the Company (and any associates of such a Director), except one who is ineligible to participate in any employee incentive scheme in relation to the Company. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Voting Prohibition Statement: Under section 224 of the Corporations Act, a vote on this resolution must not be cast in any capacity by Mr Vuleta or any of his associates. However, this does not prevent Mr Vuleta or any of his associates from casting a vote as a proxy appointed by writing that specifies how the proxy is to vote on the resolution and is not cast on behalf of any person prohibited from voting on the resolution.

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Further, a person appointed as a proxy must not vote on the basis of that appointment on Resolution 5 if:








RESOLUTION 6 – ISSUE OF NED OPTIONS TO MALCOLM RANDALL To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That, for the purposes of Section 208 of the Corporations Act and ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue 5,000,000 NED Options to Mr Malcolm Randall, a director of the Company, and/or his nominee on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 6 by Mr Randall and any of his associates. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Voting Prohibition Statement: Under section 224 of the Corporations Act, a vote on this resolution must not be cast in any capacity by Mr Randall or any of his associates. However, this does not prevent Mr Randall or any of his associates from casting a vote as a proxy appointed by writing that specifies how the proxy is to vote on the resolution and is not cast on behalf of any person prohibited from voting on the resolution. Further, a person appointed as a proxy must not vote on the basis of that appointment on Resolution 6 if:








RESOLUTION 7 – ISSUE OF NED OPTIONS TO CHI TO (NATHAN) WONG To consider and, if thought fit, to pass the following resolution as an ordinary resolution: “That, for the purposes of Section 208 of the Corporations Act and ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue 3,000,000 NED Options to Mr Chi To (Nathan) Wong, a director of the Company, and/or his nominee on the terms and conditions set out in the Explanatory Statement”.

Voting Exclusion: The Company will disregard any votes cast on Resolution 7 by Mr Wong and any of his associates. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Voting Prohibition Statement: Under section 224 of the Corporations Act, a vote on this resolution must not be cast in any capacity by Mr Wong or any of his associates. However, this does not prevent Mr Wong or any of his associates from casting a vote as a proxy appointed by writing that specifies how the proxy is to vote on the resolution and is not cast on behalf of any person prohibited from voting on the resolution. Further, a person appointed as a proxy must not vote on the basis of that appointment on Resolution 7 if:





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B. MAJORITY REQUIRED FOR RESOLUTION TO BE PASSED

Resolutions 1 to 7 will be passed if at least 50% of the votes on that Resolution (either in person, proxy, attorney or by corporate representative) are in favour of that Resolution.

C. PROXIES

Each Shareholder that is entitled to attend and vote is entitled to appoint a proxy. The proxy does not need to be a Shareholder. A Shareholder that is entitled to cast two or more votes may appoint not more than two proxies to attend and vote on their behalf. The person or persons so appointed need not necessarily be Shareholders. Where two proxies are appointed, each proxy should be appointed to represent a specified portion or number of the Shareholder’s voting rights (failing which each appointee will be entitled to cast half the Shareholder’s votes).

A Proxy Form together with instructions on how to complete the Proxy Form is attached.

To vote by proxy, please complete and sign the enclosed Proxy Form and return it to Computershare Investor Services Pty Limited by:

(a) Mail to:

Computershare Investor Services Pty Ltd

GPO Box 242

Melbourne Victoria 3001

Australia; or

(b) Facsimile to:

1800 783 447 (within Australia) or

+61 3 9473 2555 (outside Australia); or

(c) Online:

At www.investorvote.com.au; or

(d) By Mobile:

Scan the QR Code on your Proxy form and follow the prompts.

Custodian Voting For Intermediary Online subscribers only (custodians) please visit www.intermediaryonline.com to submit your voting intentions.

To be valid, properly completed proxy forms must be received by the Company no later than 48 hours before the Meeting.

A body corporate Shareholder may elect to appoint a representative, rather than appoint a proxy, in accordance with section 250D of the Corporations Act. Where a body corporate appoints a representative, the Company requires written proof of the representative’s appointment to be lodged with or presented to the Company before the meeting.

If you return your Proxy Form but do not nominate a representative, the Chairman of the General Meeting will be your proxy and will vote on your behalf as you direct on the proxy form. If your nominated representative does not attend the meeting then your proxy will revert to the Chairman of the General Meeting and he will vote on your behalf as you direct on the proxy form.

The Chairman will vote undirected proxies in favour of Resolutions 1 and 6. In respect of Resolutions 2 to 5, Shareholders should refer to the important information below under the heading “Important information concerning proxy votes on Resolutions 2 to 5”.

IMPORTANT INFORMATION CONCERNING PROXY VOTES ON RESOLUTIONS 4 TO 7

The Corporations Act places certain restrictions on the ability of key management personnel and their closely related parties to vote on the Resolutions connected directly or indirectly with the remuneration of the Company’s Key Management Personnel. Key management personnel of the Company are Directors and all other persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. The Company’s Remuneration Report for the year ended 30 June 2013 (forming part of the Directors’ Report in the Company’s 2013 Financial Report) identifies the Company’s Key Management Personnel for the financial year ended 30 June 2013. “Closely related party” is defined in the Corporations Act and includes certain family members, dependants and companies controlled by key management personnel.

For these reasons, Shareholders who intend to vote by proxy should carefully consider the identity of their proxy and are encouraged to direct their proxy as to how to vote on all Resolutions. In particular, Shareholders who intend to appoint the Company’s Chairman as their proxy (including an appointment by default) are encouraged to direct the Chairman as to how to vote on all Resolutions.

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If the Chairman of the Meeting is appointed, or taken to be appointed, as your proxy, you can direct the Chairman to vote for, against or abstain from voting on Resolutions 4 to 7 by marking the appropriate box opposite the respective Resolutions on the proxy form. You should direct the Chairman how to vote on these Resolutions.

However, if the Chairman of the Meeting is your proxy and you do not direct the Chairman how to vote in respect of Resolutions 4 to 7 on the proxy form, you will be deemed to have directed and expressly authorised the Chairman to vote your proxy in favour of the relevant Resolution(s). This express authorisation acknowledges that the Chairman may vote your proxy even if:

(a) Resolutions 4 to 7 are connected directly or indirectly with the remuneration of a member of the Key Management Personnel for the Company; and

(b) the Chairman has an interest in the outcome of Resolutions 4 to 7 and that votes cast by the Chairman for this Resolution, other than as authorised proxy holder, will be disregarded because of that interest.

DATED: 22 May 2014 BY ORDER OF THE BOARD

JOHN TRAICOS JOINT COMPANY SECRETARY

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E X P L A N A T O R Y S T A T E M E N T

This Explanatory Statement has been prepared for the information of Shareholders in connection with the business to be conducted at the General Meeting to be held at 10.00am (WST) on 27 June 2014 at the City West Reception Centre, 45 Plaistowe Mews, West Perth, Western Australia 6005.

The purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of General Meeting.

This Explanatory Statement should be read in its entirety before making a decision as to how to vote at the Meeting and should be read in conjunction with the accompanying Notice of Meeting and the Independent Expert’s Report.

1. RESOLUTION 1 – APPROVAL OF THE RCF FUNDING PACKAGE 1.1 Background The Company has entered into a commitment letter with Resource Capital Fund VI L.P. (RCF), under which RCF has conditionally agreed to provide a funding package of up to US$42.5 million (RCF Funding Package) to the Company and its wholly owned subsidiary, Keysbrook Leucoxene Pty Ltd (KLPL) to support the development of the Company’s Keysbrook Mineral Sands Project (Keysbrook Project). Resource Capital Funds is a private equity group comprising a number of private equity funds with mandates to make investments exclusively in the mining sector across a diverse range of hard mineral commodities and geographic regions. RCF is the sixth Resource Capital Fund, with committed capital of US$2.04 billion. As at the date of this document, RCF holds approximately 13.8% of the Company’s issued share capital.

The RCF Funding Package is expected to provide the equity/mezzanine finance portion of the Keysbrook Project development funding, and when combined with the recently announced underwriting by RMB Australia Holdings Ltd of US$64 million in project debt facilities (the Senior Debt Facility), should provide all of the funds required by the Company to develop the Keysbrook Project.

The RCF Funding Package comprises:

• (Royalty Purchase) an amount of US$3.5 million to be paid by RCF in return for the grant by KLPL to RCF of a 2% gross revenue royalty over its interest in an area that includes the Keysbrook Project;

• (Convertible Loan Facility) a US$21 million Convertible Loan Facility to be provided to KLPL;

• (Bridge Finance Facility) Bridge Finance Facility for a total amount of US$18 million, comprising:

o US$5M to provide funding for the establishment of a debt service reserve account to the extent required under the Senior Debt Facility (being Tranche A); and

o US$13M to provide funding support for MZI’s corporate purposes and to provide funding support for the balance of the equity contribution required for completion of the Keysbrook Project development activities (being Tranche B).

A summary of the key terms of each component of the RCF Funding Package are set out in more detail in paragraph 1.2 below. Resolution 1 seeks the approval of Shareholders to the RCF Funding Package, and in particular:

• the entry into of the Royalty Purchase, the Convertible Loan Facility and the Bridge Finance Facility;

• MZI issuing Shares and RCF Options to RCF:

o upon any conversion of the Convertible Loan Facility and, if applicable, any convertible loan facilities that result from the Bridge Finance Facility;

o to the extent that the Company elects to do so, in satisfaction of interest payable under the RCF Funding Package from time to time; and

o in satisfaction of various fees payable in connection with the RCF Funding Package;

• the potential for RCF to increase its voting power in the Company up to a maximum of 73.9%; and

• the grant of security over the Company’s assets in favour of RCF.

Further details regarding the RCF Funding Package, and its implications for the Company and the Keysbrook Project, are set out below and in the annexures to this Explanatory Statement.

1.2 Key terms of RCF Funding Package A summary of the key terms of each component of the RCF Funding Package is set out below.

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Component Amount Overview of key terms

Royalty Purchase US$3.5 million 2% gross revenue royalty

Applies to revenue received (or deemed to be received) from the sale of any mineral or other product extracted or recovered from a specified area (including the Keysbrook Project).

Planned to be used to fund partial repayment of amounts drawn down under the US$4.5 million RCF Interim Loan Facility made available by RCF

Convertible Loan Facility

US$21 million To be used to provide funding support for the balance of the equity contribution required for completion of Keysbrook Project development activities and to establish a cost overrun account to the extent required under the Senior Debt Facility.

Subject to satisfaction of conditions to draw, available until 30 June 2014 or such later date agreed by RCF.

54 month term (no ability to pre-pay).

10% p.a. interest rate on amounts outstanding (payable quarterly in arrears). MZI may elect to issue Shares in lieu of cash interest payments.

Convertible into Shares at any time prior to maturity at a conversion price equal to the higher of:

(a) 120%* of the lower of A$0.01373, the 30 trading day VWAP of Shares as at the date of drawdown or the 30 trading day VWAP of Shares at the date of acceptance; and

(b) A$0.01 (or where the Company has issued or agreed to issue Shares at a lower subscription price (other than under an employee incentive scheme), that lower price),

using an exchange rate of A$1:US$0.9026 (except where the conversion price is determined by reference to the VWAP of Shares in which case the exchange rate will be calculated by reference to the time at which the right to be issued (or to issue) Shares arises.

* The 20% premium will be reduced to 0% if the Company is unable to demonstrate, before the date that is 3.5 years post first production, sufficient additional ore reserves (at grades and assemblages not materially different to those in the initial ore reserve) that will allow mining and processing to continue at materially similar rates as initially budgeted for at least 3.5 years immediately post the initial mine life of 5.5 years.

RCF is to receive 44,000,000 RCF Options by way of an acceptance fee (subject to approval of Resolution 1).

Establishment fees become payable upon satisfaction of conditions precedent, equal to 3% of the Convertible Loan Amount, issued in Shares at an agreed issue price of $0.01373.

Bridge Finance Facility

Tranche A – US$5 million

Tranche B - US$13 million

Tranche A is to provide funding to establish any debt service reserve account to the extent required under the Senior Debt Facility.

Tranche B is to provide funding support for the Company’s corporate purposes and to provide funding support for the balance of the equity contribution required for completion of the Keysbrook Project development activities.

Subject to satisfaction of conditions to draw, Tranche A is available until 31 March 2015 or such later date agreed by RCF.

Subject to satisfaction of conditions to draw, Tranche B is available until 30 June 2014 or such later date agreed by RCF.

10% p.a. interest rate on amounts outstanding (payable quarterly in arrears). MZI may elect to issue Shares in lieu of cash interest payments.

Each tranche is repayable 12 months after drawdown of that tranche (MZI may pre-pay without penalty). Any equity raised by the Company must be used to prepay amounts outstanding under these facilities.

If a tranche is not repaid before its maturity date, it will automatically convert into a convertible loan facility on terms substantially the same as the Convertible Loan Facility except that:

- a 10% (as opposed to 20%) premium will be applied to determine the conversion price (subject always to that premium being reduced to 0% if the Company is unable to satisfy the requisite mine life extension test); and

- the maturity date will be 54 months from the date that either tranche of the Bridge Loan

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Component Amount Overview of key terms

Facility converts into a convertible loan facility. This means that if both tranches of the Bridge Loan Facility convert into a convertible loan facility, those facilities will mature on the same date regardless of when the relevant tranche was first drawn down.

RCF is to receive a total of 35,500,000 RCF Options by way of an acceptance fee (subject to approval of Resolution 1).

Upon satisfaction of conditions precedent, establishment fees become payable for each tranche equal to 3% of the total amount of the relevant tranche, issued in Shares at an agreed issue price of $0.01373.

Commitment fees are payable (at 10% p.a.) on any unutilised portion of the Bridge Finance Facility, although the Company presently intends to draw down on the full amount of each tranche of the Bridge Finance Facility when those tranches become available such that no commitment fees are anticipated to be payable.

The RCF Funding Package is to be secured by way of general security over all of MZI’s assets. The Company is currently working with RCF and the proposed senior lenders to agree the security structure that will be required as part of these facilities, although it is anticipated that a security trust will be established for the benefit of securing amounts provided under the RCF Funding Package as well as under the Senior Debt Facility. It is anticipated that amounts drawn down under the Convertible Loan and Bridge Finance Facility will be subordinated to any amounts owing under the Senior Debt Facility while payments required to be made under the royalty the subject of the Royalty Purchase will rank ahead of amounts due under the Senior Debt Facility.

The Convertible Loan Facility and the Bridge Finance Facility will contain representations and warranties, undertakings and events of default which are customary for facilities of that nature, including restraints on creating liabilities and/or dealing with assets of the MZI Group until the facilities are repaid. RCF’s rights under the RCF Funding Package are in addition to rights already granted to RCF in connection with its investment in the Company in July 2013 (such as restrictions on Share issues and RCF’s ability to appoint a nominee to the Company’s Board of Directors).

The RCF Funding Package, and drawdown on the various facilities the subject of that funding package, remains subject to satisfaction of a number of conditions precedent, including completion of satisfactory confirmatory due diligence enquiries (including metallurgical testwork presently underway), execution of senior debt facility agreements in a form satisfactory to RCF and satisfaction of the conditions precedent to drawdown on those facilities, execution of material agreements (including offtake contracts) in relation to the Keysbrook Project in a form acceptable to RCF, and obtaining the requisite Shareholder approval (being the subject of Resolution 1). Either party may terminate the RCF Funding Package if the conditions precedent are not satisfied (or otherwise waived by RCF) by 30 June 2014 or such later date as RCF may agree.

The Company has agreed to pay RCF a break fee (equal to 3% of the total amounts available for drawdown under the relevant facility) if the Company does not proceed to draw down on the Convertible Loan Facility or the Bridge Finance Facility in circumstances where:

(a) the relevant facility is available for drawdown;

(b) the MZI Group has not acted in good faith in seeking to satisfy the conditions precedent to drawdown of those facilities or are otherwise in material breach of their obligations under the RCF Funding Package; or

(c) there has been a change of control of the Company or its wholly-owned subsidiary KLPL without RCF’s prior written consent.

In the event that Shareholders do not approve Resolution 1, the Company is required to pay RCF $380,000 in value in lieu of the acceptance fees for RCF offering to provide the RCF Funding Package which would otherwise be paid in the form of the RCF Options.

Further details regarding the key terms and conditions relating to the RCF Funding Package are set out in Annexure A.

1.3 Independent Expert’s Report To assist Shareholders in their consideration of the RCF Funding Package (and how to vote on Resolution 1), the Board engaged BDO Corporate Finance (WA) Pty Ltd (Independent Expert) to prepare an Independent’s Expert Report to provide an opinion on whether or not the RCF Funding Package is ‘fair and reasonable’ to Shareholders who are not associated with RCF.

The Independent Expert’s Report has been prepared in order to satisfy the requirements for Shareholder approval under Item 7 of section 611 of the Corporations Act and ASX Listing Rule 10.1, and sets out a detailed independent examination of the RCF Funding Package to enable non-associated Shareholders to assess the merits and decide whether to approve Resolution 1. To the extent that it is appropriate, the Independent Expert’s Report sets out further information with respect to the RCF Funding Package.

The Independent Expert has concluded that, in the absence of a superior offer, the RCF Funding Package is not fair but reasonable to Shareholders in terms of the voting power that RCF may acquire in the Company.

The Independent Expert has also separately opined on the proposed provision of security to RCF as part of the proposed RCF Funding Package. The Independent Expert has concluded that, in the absence of a superior offer, the provision of the security package to RCF is fair and reasonable to Shareholders.

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A complete copy of the Independent Expert Report is provided in Annexure C to the Notice of Meeting and is also available on the Company’s website at www.mzi.com.au. Shareholders may request a hard copy of the Independent Expert’s Report from the Company at no cost by contacting the Company by telephone on (+61 8) 9328 9800.

Shareholders are urged to carefully read the Independent Expert’s Report to understand its scope, the methodology of the valuation and the sources of information and assumptions made.

1.4 Advantages of the RCF Funding Package The Directors believe that the RCF Funding Package has the following advantages:

(i) Provides the balance of the funding necessary to develop the Keysbrook Project The RCF Funding Package will provide the equity/mezzanine finance portion of the Keysbrook Project development funding, and when combined with the underwriting by RMB Australia Holdings Ltd of approximately US$64 million to be provided by way of a Senior Debt Facility, should provide all of the funds required by the Company to develop the Keysbrook Project.

Before entering into the RCF Funding Package, the Company spent (with assistance from various financial advisers) considerable time assessing the potential to raise the balance of the funding required to develop the Keysbrook Project (being that not expected to be provided under the Senior Debt Facility) via a capital raising or other corporate transaction before entering into the RCF Funding Package. However, given the size of the funding required compared to the Company’s current market capitalisation and the risk profile associated with the development of a resources project in the prevailing financial and commodity market conditions, the Directors concluded that the Company was highly unlikely in the current economic environment to be able to successfully complete such a capital raising or corporate transaction at an acceptable price.

For these reasons, the Directors consider that the RCF Funding Package is the only realistic alternative of which they are currently aware for the Company to raise the balance of the necessary development capital to enable the construction of the Keysbrook Project to commence in the short term.

The Directors consider that scaling back activities at the Keysbrook Project to enable the Company more time to identify other potential funding options (none of which have been identified to date) and/or wait for economic conditions to improve, is not in the interests of Shareholders given the ongoing holding costs associated with maintaining the project in its current state, as well as the risks and potential liabilities associated with meeting the Company’s commitments under various key material contracts which have been finalised with landowners, purchasers of expected production and service providers for the Keysbrook Project.

(ii) Enables the Company to construct the project and commence production by mid 2015 The provision of funding under the RCF Funding Package, together with the US$64 million expected to be received under the Senior Debt Facility, puts the Company in a position where it expects to commence construction of the Keysbrook Project in mid-2014, with first production scheduled for mid-2015.

(iii) Increased potential for Shareholders to receive dividends in the future The provision of funding and subsequent commencement of production at the Keysbrook Project is expected to provide positive cash flow that may enable the Company to pay dividends to shareholders in the future, should the Board approve an appropriate dividend payment policy.

(iv) Ensures the Company meets existing Keysbrook Project commitments The provision of funding under the RCF Funding Package and the Senior Debt Facility enables the Company to progress construction of the Keysbrook Project so as to meet its commitments under key material contracts which have been finalised with landowners, purchasers of expected production and service providers for the Keysbrook Project. Delays in meeting such commitments are likely to prejudice the Keysbrook Project schedule and result in further significant costs and expenditure.

In the absence of being able to secure this funding, or any alternative funding in the short term, to finance the equity/mezzanine portion of the Keysbrook Project development funding, the Company would need to urgently consider scaling back the level of activity undertaken in relation to the development of the Keysbrook Project. In such circumstances, there would be significant uncertainty surrounding the development of the Keysbrook Project. The Directors consider that deferring the development of the Keysbrook Project is not in the interests of Shareholders due to the ongoing holding costs incurred by the Company that are associated with maintaining the project in its current state, as well as the risks and potential liabilities associated with meeting the Company’s commitments under various key material contracts which have been finalised with landowners, purchasers of expected production and service providers for the Keysbrook Project. In such circumstances, the Company would also need to urgently source additional funding to repay amounts outstanding under the RCF Interim Loan Facility and meet payments due to landowners pursuant to agreements with landowners.

(v) RCF Funding Package further strengthens the relationship with the Company’s cornerstone investor As at the date of this document, RCF holds approximately 13.8% of the Company’s issued share capital. The RCF Funding Package and the provision of the RCF Interim Loan Facility provides further evidence of RCF’s confidence in, and support and commitment to, the development of the Keysbrook Project. Further, MZI notes that RCF is only likely to extract value from the Royalty Purchase to the extent the Keysbrook Project is successfully taken into, and remains in, production.

Any issue of Shares and RCF Options to RCF under the RCF Funding Package will increase the Company’s market capitalisation, improve the Company’s balance sheet position (as a result of issuing Shares to satisfy liabilities in lieu of having to make cash payments) and provide an even greater incentive for RCF to support the development of the Keysbrook Project as well as the Company’s other value creating initiatives.

(vi) The RCF Funding Package minimises the cash outflow during the Keysbrook Project construction phase The Company expects to incur significant expenditure during the Keysbrook Project construction phase, and does not expect to receive any material revenue during this period with which to fund such expenditure.

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The provision of funding via the Royalty Purchase avoids the need to pay interest on that component of the RCF Funding Package, as it provides an upfront payment in return for a royalty over future revenue derived from the Keysbrook Project. Further, the ability of the Company to issue Shares in lieu of cash interest payments under the Convertible Loan Facility and the Bridge Finance Facility enables the Company to minimise its cash expenses until sufficient revenue is derived from production from the Keysbrook Project to service those interest payments. In this regard, once the Keysbrook Project is in production, the Directors intend to use any available surplus cash flow to pay interest in cash rather than exercise its rights to issue Shares to RCF in lieu of cash interest payments.

(vii) Potential for re-rating of the Share price The provision of funding under the RCF Funding Package, together with amounts expected to be received under the Senior Debt Facility, should substantially de-risk the development of the Keysbrook Project.

As a consequence, the Directors expect that the price of the Company’s Shares will be re-rated as a result of securing finance for the Keysbrook Project development, and will continue to rerate as the development of the Keysbrook Project continues to be de-risked. Any re-rating of the Company’s Share price should increase the market capitalisation of the Company and provide the Company with greater flexibility in funding fund future expenditures, including options to repay any amounts owing under the RCF Funding Package.

1.5 Disadvantages of the RCF Funding Package The Directors believe that the RCF Funding Package has the following disadvantages:

(i) Potential dilution of Shareholder interests The RCF Funding Package contemplates the issue of Shares and RCF Options to RCF. The issue of Shares to RCF will dilute the equity interests of existing non-associated Shareholders. An indication of the maximum potential impact on RCF’s voting power in the Company as a result of the issue of Shares and RCF Options to RCF is shown in paragraph 1.7 below.

However, as the Convertible Loan Facility has a 54 month term, the Directors consider it unlikely that RCF will elect to convert amounts outstanding under that facility early as this would eliminate the option value associated with such a hybrid facility. Further, there is no guarantee that RCF will ultimately elect to convert all or some of the amount owing under the Convertible Loan Facility into Shares, and may still require the Company to repay amounts owing under that facility in cash.

The Directors also expect that once the Keysbrook Project is in production (currently expected to be in mid 2015), the Company is likely to be able to commence servicing some or all of the interest payments required to be made on amounts drawn down under the Convertible Loan Facility and Bridge Finance Facility in cash, thereby reducing the number of Shares that may be issued to RCF under these facilities (and the associated dilution to existing Shareholder interests). It is also possible that the Company may be able to repay or refinance amounts owing under the Bridge Finance Facility on or before their relevant maturity dates, so as to avoid automatic conversion of these facilities into convertible loan facilities.

Even if the Company elects to pay interest via the issue of Shares, the Directors expect that the price at which any such Shares are issued would be higher than current share trading levels due to an expectation that the Company’s share price will continue to re-rate as the Keysbrook Project moves into the production phase. Any such increase in the Company’s Share price will result in fewer Shares being issued to RCF should the Company elect to service interest payments via the issue of Shares.

For these reasons, the Directors believe that the voting power that RCF will ultimately acquire in the Company will be less than the maximum amount of 73.9% that Shareholders are being asked to approve, and is more likely to be at the lower end of the range of 40.4% to 73.9% assessed by the Independent Expert as the minimum and maximum scenarios.

(ii) Payments in cash As RCF can elect not to convert amounts owing under the Convertible Loan Facility (and the Bridge Finance Facility in circumstances where one or both tranches of that facility has automatically converted into a convertible loan facility), there is no certainty that the entire debt component of the RCF Funding Package will ultimately be converted into Shares, and may be required to be repaid in cash.

(iii) Reduced likelihood of control transaction Whilst amounts are owing under the RCF Funding Package, the RCF Funding Package provides RCF with the ability to acquire a controlling interest in the Company by converting the Convertible Loan Facility (and if applicable, any convertible loan facility created in accordance with the terms of the Bridge Finance Facility) into Shares. This is likely to negatively impact upon the likelihood of any change of control proposal being made for the Company whilst the Convertible Loan Facility and Bridge Finance Facility remain outstanding. However, the Directors believe this is outweighed by the benefits to Shareholders arising out of the construction and development of the Keysbrook Project being fully funded so as to allow construction of that project to occur and the Company being able to derive revenue from the sale of product from the Keysbrook Project.

(iv) Additional costs The grant of a royalty to RCF over KLPL’s interest in an area that includes the Keysbrook Project imposes an ongoing cash cost to the Company once the Company is deriving revenue from the Keysbrook Project. As the royalty is over an area that is greater than the Keysbrook Project, it also imposes a potential cash cost on any revenues that may be derived from future mining-related activities that may be undertaken by the Company in the wider area subject to the royalty.

However, the Royalty Purchase provides the Company with an up-front payment of US$3.5 million, and provides funding to repay the RCF Interim Loan Facility and reduces the amount of equity and debt required to fund the overall Keysbrook Project development costs. As noted above, RCF is only likely to extract value from the Royalty Purchase to the extent the Keysbrook Project is successfully taken into, and remains in, production.

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1.6 Why is Shareholder approval required to the RCF Funding Package? (a) Shareholder approval under section 611 item 7 of the Corporations Act Section 606 of the Corporations Act contains a prohibition on a person acquiring a relevant interest in issued voting shares in a listed company through a transaction which results in the person’s voting power in the company increasing from below 20% to more than 20% or from a starting point of more than 20% to a higher percentage. An acquisition is not prohibited if it has been approved by a resolution of the listed entity under item 7 of Section 611 of the Corporations Act.

A “relevant interest” arises if (among other things) the person has the ability to exercise, or control the exercise of, a right to vote attached to shares. A person’s “voting power” for these purposes means the total number of votes that the person and its associates has a relevant interest in, expressed as a percentage of total votes attaching to all shares in the entity.

Accordingly, Shareholder approval is being sought under section 611 item 7 of the Corporations Act to ensure that the Company may issue Shares to RCF in accordance with the terms of the RCF Funding Package, irrespective of whether this would increase RCF’s relevant interest in the Company’s voting shares to above the 20% threshold.

For the exemption in Item 7 of section 611 of the Corporations Act to apply, shareholders must be given all information known to the person proposing to make the acquisition or their associates, or known to the company, that is material to the decision of how to vote on the resolution. In ASIC Regulatory Guide 74, ASIC has indicated what additional information should be provided to shareholders in these circumstances.

Neither the Company nor the Directors are aware of any additional information not set out in this Explanatory Statement, or the Independent Expert’s Report attached as Annexure B, that would be relevant to Shareholders in deciding how to vote on the Resolution.

(b) Shareholder approval required under ASX Listing Rule 10.1 ASX Listing Rule 10.1 provides that an entity must ensure that neither it, nor any of its child entities, acquires a substantial asset from, or disposes of a substantial asset to, amongst other persons, a substantial holder or one of its associates, without the prior approval of holders of the entity’s ordinary shareholders.

For the purposes of ASX Listing Rule 10.1:

• A substantial shareholder is a person who has a relevant interest (either directly or through its associates), or had at any time in the six months before the transaction, in at least 10% of the total votes attaching to the voting securities. RCF is a “substantial shareholder” of MZI for the purposes of Listing Rule 10.1 because as at the last practicable date prior to the date of finalising this document, RCF had a relevant interest in the Company of 368,897,790 Shares (or approximately 13.8 % of the Company’s issued voting Shares). RCF is not considered to be a related party of MZI.

• ‘Dispose’ is defined as meaning to dispose of something, or agree to dispose of something by any means, whether directly or through another person, and includes the use of an asset as collateral. Accordingly, the granting of the security to RCF under the RCF Funding Package is considered to be a disposal of an asset of the Company for the purposes of ASX Listing Rule 10.1.

• An asset is ‘substantial’ if its value, or the value of the consideration for it is, or in ASX’s opinion is, 5% or more of the equity interests of the entity as set out in the latest accounts given to ASX under the ASX Listing Rules.

Under the RCF Funding Package, the MZI Group will grant RCF a royalty and provide security over all of its assets. The granting of this royalty and the provision of security is considered to amount to the disposal of a substantial asset for the purposes of ASX Listing Rule 10.1, such that prior Shareholder approval is required to be obtained.

(c) ASX Listing Rule 7.1 As approval is being sought under section 611 item 7 of the Corporations Act for the issue of Shares and RCF Options under the RCF Funding Package, no approval is required for the purposes of ASX Listing Rule 7.1 for the issue of those Shares and RCF Options, and those Shares and RCF Options (and any Shares issued upon exercise of those RCF Options) will not count towards the Company’s 15% “new issues” capacity under that Listing Rule.

1.7 Effect of the RCF Funding Package on RCF’s voting power in the Company Under Resolution 1, Shareholders are being asked to approve (amongst other things) RCF and its associates increasing their voting power in the Company to above 20% for the purposes of Item 7 of section 611 of the Corporations Act.

Under the RCF Funding Package, Shares and RCF Options may be issued to RCF in the following circumstances:

• (acceptance fees) acceptance fees in connection with the execution of the binding term sheet for the RCF Funding Package, comprising the issue of a total of 79,500,000 RCF Options, each having a 3-year term from the date of issue and an exercise price of $0.01648 per Share. In the event that Shareholders do not approve Resolution 1, the Company must pay RCF $380,000 in lieu of the issue of these RCF Options;

• (establishment fees) establishment fees payable upon the Convertible Loan Facility and the Bridge Finance Facility becoming available for drawdown. These establishment fees are payable by way of the issue of Shares equal to 3% of the relevant amounts that are available for draw down under the Convertible Loan Facility and the Bridge Finance Facility, issued at an issue price of $0.01373 and using an exchange rate of A$1.00:US$0.9396;

• (interest) MZI may elect to issue Shares to RCF in satisfaction of interest payable under the Convertible Loan Facility and the Bridge Loan Facility from time to time. The number of Shares to be issued will depend upon whether MZI elects to pay interest in the form of Shares, and if so, on the amount drawn down under these facilities and the US$:A$ exchange rate at the applicable time, and will be

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calculated based on the 5 day VWAP of the Company’s Shares on ASX calculated on the trading day before the relevant interest payment date;

• (conversion of Convertible Loan Facility) RCF may elect to convert amounts outstanding under the Convertible Loan Facility into Shares. If RCF makes such an election, the number of Shares to be issued will depend on the Share price at the date of drawdown, the US$:A$ exchange rate, whether MZI meets the relevant mine life extension requirement prescribed in the RCF Funding Package and the amount outstanding under the relevant facilities at the time of conversion.

• (conversion of any convertible loan facility resulting from failure to repay Bridge Finance Facility) As set out in paragraph 1.2 above, if the Company does not repay amounts owing under a tranche of the Bridge Finance Facility by the last date for repayment of that tranche, that tranche of the Bridge Finance Facility will automatically convert into a convertible loan facility. In such circumstances, RCF may elect to convert amounts outstanding under any such convertible loan facility into Shares. If RCF makes such an election and/or Shares are issued under any such facility, the number of Shares to be issued will depend on the Share price at the date of the relevant tranche of the Bridge Loan Facility converts into a convertible loan facility, the US$:A$ exchange rate, whether MZI meets the relevant mine life extension requirement prescribed in the RCF Funding Package and the amount outstanding under the relevant facilities at the time of conversion. The table below provides an indication of the maximum percentage shareholding which RCF may acquire in MZI (assuming the full US$42.5 million is advanced under the RCF Funding Package and on the basis of the other assumptions set out in the notes to the table) as a result of the various transactions contemplated in the RCF Funding Package. As set out in paragraphs 1.3 and 1.4 above, the number of Shares issued to RCF under or in connection with the RCF Funding Package will ultimately depend upon: o the extent to which RCF exercises the RCF Options issued to it; o the extent to which RCF exercises its rights of conversion under the Convertible Loan Facility; o the extent to which the Company elects to satisfy its obligation to pay interest and commitment fees in the form of Shares; o the extent to which the Company has repaid any amounts drawn down under each tranche of the Bridge Finance Facility by their

due date for repayment, so as to avoid any such facilities automatically converting into a convertible loan facility; and as well as other factors such as the Company’s Share price and the US$:A$ exchange rate, both at various times in the future. Accordingly, the actual voting power acquired by RCF in the Company may be substantially lower than the maximum percentage shareholding indicated in the table below, which Shareholders are being asked to approve under Resolution 1.

Existing capital structure1 Maximum Post RCF Funding Package capital structure

Number of Shares

Shareholding %

Number of Shares

Shareholding %

Shareholding Fully Diluted %

Existing Shareholders (other than RCF) 2,311,028,047 86.2% 2,311,028,047 26.7% 26.2%

RCF’s existing Shares 368,897,790 13.8% 368,897,790 4.3% 4.2%

RCF’s Shares in satisfaction of establishment fees2

- 90,692,697 1.0% 1.0%

RCF’s Shares upon conversion of Convertible Loan Facility3

- 2,326,612,010 26.9% 26.3%

RCF’s Shares upon conversion of Bridge Finance Facility4

- 1,938,193,173 22.4% 21.9%

RCF’s Shares in lieu of interest payments on Convertible Loan Facility5

- 805,365,696 9.3% 9.1%

RCF’s Shares in lieu of interest payments on Bridge Loan Facility6

- 820,004,804 9.5% 9.3%

Total undiluted Shares 2,679,925,837 100% 8,660,794,217 100%

Options held by parties other than RCF 84,500,000 84,500,000 1.0%

RCF Options in satisfaction of acceptance fees7 - 79,500,000 0.9%

NED Options subject to Resolutions 6 and 7 - 8,000,000 0.1%

Total diluted Shares 2,764,425,837 8,832,794,217 100%

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Explanatory notes and assumptions 1. Assumes that before the maturity date of the facilities provided under the RCF Funding Package (Maturity Date), the Company will not

issue any other Shares or Options other than in respect of the RCF Funding Package and that RCF and its associates will not acquire any further relevant interest in Shares.

2. The calculation of the number of Shares to be issued by way of establishment fees is based on an exchange rate of A$1.00:US$0.9396, being the applicable exchange rate as at the date the Company accepted the RCF Funding Package.

3. Assumes the Convertible Loan Facility is converted into Shares as at the Maturity Date, at a conversion price of A$0.01 per Share (which is the lowest possible conversion price under the RCF Funding Package), and an exchange rate of US$0.9026:A$1.00 (which is the exchange rate applicable to the lowest possible conversion price). The actual number of Shares that may be required to be issued may be less than this amount if the MZI Share price is higher than A$0.01 per Share (assuming no movements in the A$:US$ exchange rate). As at the last date practicable before finalising this document (being 5 May 2014), the MZI Share price was A$0.013 per Share and the exchange rate was US$0.9270:A$1.00.

4. Assumes that the two Bridge Loan Facility tranches are fully drawn down on 30 June 2014 and 31 March 2015 respectively, and that the entire amount of those facilities is automatically converted into convertible loan facilities with the entire amount of those convertible loan facilities being converted into Shares as at the maturity date for those facilities, at a conversion price of A$0.01 per Share (which is the lowest possible conversion price under the RCF Funding Package), and an exchange rate of US$0.9026:A$1.00 (which is the exchange rate applicable to the lowest possible conversion price). As set out in the note above, the actual number of Shares that may be required to be issued may be less than this amount if the MZI Share price is higher than A$0.01 per Share (assuming no movement in the A$:US$ exchange rate).

5. Assumes that the Company seeks to satisfy all interest payments under the Convertible Loan Facility by way of the issue of Shares. The number of Shares will been calculated based on the 5 trading day VWAP up to 30 April 2014 (being $0.013) and a 10% interest rate on the full amount of the facility with interest being paid quarterly until the Maturity Date. The actual number of Shares required to be issued is calculated by reference to the 5 trading day VWAP calculated on the last trading day before the applicable interest payment date, and so this price will vary as will the number of interest shares to be issued to RCF. The Company expects to draw down on (and therefore pay interest on) the entire amount available under the Bridge Finance Facility, and so anticipates that no commitment fees will be payable to RCF. For this reason, the table above assumes that no commitment fees are payable to RCF. In the event that commitment fees are payable, it is noted that the number of Shares that may be issued to RCF in lieu of cash interest payments will reduce by a corresponding amount.

6. Assumes that the Bridge Finance Facility is fully drawn, that the Bridge Finance Facility automatically converts to a convertible loan facility and is not converted until the maturity date of that convertible loan facility, and that the Company seeks to satisfy all interest payments under the Bridge Finance Facility (and any convertible loan facility automatically created as a result of the Bridge Loan Facility not being repaid by the relevant maturity date) by way of the issue of Shares. The number of Shares has been calculated based on the 5 trading day VWAP up to 30 June 2014 (being $0.013) and a 10% interest rate on the full amount of the facility with interest being paid quarterly until the Maturity Date . As set out in the note above, the actual number of Shares issued will vary with movements in the MZI Share price.

7. RCF will not acquire any additional voting power in the Company as a result of the issue of the RCF Options in lieu of cash acceptance fees unless it exercises those RCF Options in accordance with their terms.

By way of summary:

• as at 5 May 2014 (being the last practicable date before finalising this Explanatory Statement), RCF and each of its associates hold 368,897,790 Shares which equates to voting power of approximately 13.8%; and

• based on the assumptions applicable to the table above, the voting power of RCF and its associates could increase to a maximum of 73.9% as a result of the issue of the Shares (including Shares issued upon exercise of RCF Options) described above.

Accordingly, under Resolution 1, Shareholders are being asked to approve the potential for RCF to increase its interest in Shares to a maximum of 73.9%. As indicated above, there is no certainty that all amounts that may be outstanding under the RCF Funding Package will be converted into Shares, or that RCF will exercise all RCF Options, so as to acquire this maximum percentage ownership interest in the Company.

The RCF Funding Package does not restrict RCF from acquiring any further Shares although any such acquisitions would need to comply with relevant securities laws (including the Corporations Act). The approval sought by Resolution 1 is to enable RCF to increase its interest in Shares to a maximum of 73.9% - any acquisition of voting power by RCF in the Company other than as a result of converting amounts owing under the Convertible Loan Facility or Bridge Finance Facility into Shares, or exercising the RCF Options issued to RCF in accordance with the RCF Funding Package, may limit RCF’s ability to exercise such conversion rights or exercise such RCF Options so as to ensure that its voting power in the Company does not exceed the 73.9% limit approved by Shareholders pursuant to Resolution 1.

If Resolution 1 is passed, the Company will include a statement in subsequent Annual Reports reminding Shareholders of the approval granted to RCF to increase its voting power in the Company to the Maximum Percentage.

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1.8 RCF’s intentions for the Company RCF has confirmed to the Company that it intends to exercise rights afforded to it by MZI under a placement agreement entered into on 30 June 2013, to appoint one of its representatives (who must be a person reasonably acceptable to MZI) as a Non-Executive Director to the Company’s Board. At this stage, the identity of RCF’s proposed nominee has not been determined. Details of RCF’s nominee director will be announced to ASX if and when RCF exercises this Board appointment right.

RCF has confirmed that it has no intention to:

• make any changes to the business of the MZI Group;

• inject any further capital into the MZI Group, although reserves the right to do so should it be required;

• make any changes to the MZI Group’s existing employees;

• transfer any of the MZI Group’s assets between the Company and RCF or its associates;

• redeploy any of the MZI Group’s fixed assets;

• change the MZI Group’s financial or dividend distribution policies.

The statements set out above are statements of RCF’s current intention only and may vary as new information becomes available or circumstances change. RCF has provided the Company with this information to assist the Company to meet its obligations under ASIC Regulatory Guide 74. The Company takes no responsibility for any omission from, or any error or false or misleading statement in this section.

1.9 Consequences if Resolution 1 is not approved If Resolution 1 is not approved, the Company will not be able to satisfy one of the conditions precedent to the RCF Funding Package, and so will not be able to draw down any funding under the RCF Funding Package unless RCF waives that condition precedent.

The Company would also be required to pay RCF $380,000 in lieu of issuing the RCF Options to RCF for acceptance fees payable in connection with the RCF Funding Package, and would need to urgently source alternative funding to repay amounts owing under the RCF Interim Loan Facility which has a maturity date of 30 June 2014 (unless further extended by RCF).

In the absence of being able to secure alternative funding in the short term to finance the equity/mezzanine portion of the Keysbrook Project development funding, the Company would need to urgently consider scaling back the level of activity undertaken in relation to the development of the Keysbrook Project. In such circumstances, there would be significant uncertainty surrounding the development of the Keysbrook Project.

1.10 Additional information required by the Corporations Act and the ASIC Regulatory Guide The following information is provided for the purposes of section 611 item 7 of the Corporations Act and ASIC Regulatory Guide 74:

(a) All Shares and Options issued in connection with the RCF Funding Package will be issued to RCF.

(b) Any issue of Shares and Options to RCF under the RCF Funding Package will be made in accordance with the terms of the RCF Funding Package.

(c) An indication of the maximum number of Shares that may be issued in connection with the RCF Funding Package is outlined in paragraph 1.7 above. For the purposes of seeking approval to an increase in RCF’s voting power, approval is being sought to authorise RCF to increase its voting power in the Company from 13.8% to up to 73.9%, being an increase in voting power of 60.1%. The voting power of RCF’s associates will be the same as the voting power of RCF.

(d) An explanation of the reasons for putting in place the RCF Funding Package, as well as the perceived advantages and disadvantages of the RCF Funding Package, are set out in paragraph 1.4. As set out in paragraph 1.11 below, all Directors voted in favour of the Company entering into the RCF Funding Package, and have recommended that Shareholders vote in favour of the Resolution 1. The reasons for the recommendation of Directors are also set out in paragraph 1.11 below.

(e) There are no contracts or proposed contracts between RCF and the Company or any of their associates that are conditional on, or directly or indirectly dependent on, Shareholder approval of the RCF Funding Package. MZI and RCF entered into a placement agreement in June 2013 which, whilst not conditional on the parties entering into the RCF Funding Package, contains additional rights in favour of RCF in relation to appointment of directors, the establishment of mezzanine finance facilities and future share issues undertaken by the Company. A summary of these rights is set out in the Company’s ASX announcement dated 30 June 2013. RCF has also provided an interim loan facility of US$4.5 million, which is proposed to be repaid partially from the proceeds of the RCF Funding Package and partially by the issue of Shares being the subject of Resolution 2.

1.11 Directors’ recommendation Based on the conclusions reached by the Independent Expert and the information set out in this document, the Directors unanimously consider:

• the advantages to the RCF Funding Package, outweigh the disadvantages of not proceeding with the RCF Funding Package; and

• the RCF Funding Package to be in the best interests of Shareholders.

The Directors unanimously approve the proposal to put Resolution 1 to Shareholders, and also unanimously recommend that Shareholders vote in favour of Resolution 1.

No Director has any interest in the RCF Funding Package or the acquisition of Shares by RCF under the terms of the RCF Funding Package.

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1.12 No other material information Other than as set out in this document, and other than information previously disclosed to Shareholders, there is no other information that is known to MZI’s Directors which may reasonably be expected to be material to the making of a decision by Shareholders whether or not to vote in favour of Resolution 1.

2. RESOLUTIONS 2 AND 3 – APPROVAL TO CONVERT PORTION OF RCF INTERIM LOAN FACILITY INTO SHARES AND APPROVAL TO ISSUE SHARES IN PAYMENT OF EXTENSION FEES

2.1 Background In December 2013, RCF advanced to the Company US$3.5million under an interim loan facility (RCF Interim Loan Facility) in order to enable the Company to continue to progress the engineering, design work and other activities at the Keysbrook Project pending finalisation of the Senior Debt Facility.

As a result of unexpected delays in relation to finalising the key terms of the Senior Debt Facility, the Company requested, and RCF agreed, to increase the funding provided under the RCF Interim Loan Facility in March 2014 to US$4.5 million so as to ensure that the Company could continue to progress activities at the Keysbrook Project such that these delays in finalising the Senior Debt Facility did not materially negatively affect the timetable for the development of the Keysbrook Project. The Company has since drawn down the entire amount of US$4.5 million available under the RCF Interim Loan Facility.

RCF also agreed to extend the due date for repayment of the RCF Interim Loan Facility to 30 June 2014, in return for an extension fee of US$105,000, payable by way of the issue of 9,489,209 Shares subject to RCF obtaining the requisite approvals to increase its voting power in the Company in accordance with the Foreign Acquisition and Takeovers Act 1975 (Cth) (FIRB Approval). If for some reason FIRB Approval is not obtained or RCF changes its election to receive the extension fee in Shares, the Company will be required to pay this extension fee in cash.

The Company and RCF have agreed that the RCF Interim Loan Facility is intended to be repaid by:

(a) subject to Resolution 1 being approved and completion of the Royalty Purchase (being part of the RCF Funding Package) occurring, applying the US$3.5 million that was to have been advanced to the Company under that Royalty Purchase in part repayment of the RCF Interim Loan Facility; and

(b) subject to FIRB Approval being obtained, RCF being issued 97,166,621 Shares in lieu of repayment of the remaining US$1 million owing under the RCF Interim Loan Facility. In the event that FIRB Approval is not obtained, the Company will be required to repay this amount in cash.

Shareholders should be aware that if Resolution 1 is not approved, the Company is unlikely to be able to draw down any funding under the RCF Funding Package with which to repay the RCF Interim Loan Facility, and so would need to urgently source alternative funding to repay amounts owing under that facility or negotiate alternative terms with RCF.

2.2 Listing Rule 7.1 Listing Rule 7.1 provides that a company must not issue or agree to issue more than 15% of its total ordinary share capital within a 12 month period unless a specified exception applies or the issue is made with the prior approval of shareholders for the purposes of Listing Rule 7.1.

Resolution 2 seeks the approval of Shareholders for the purposes of Listing Rule 7.1 (or for the purposes of Listing Rule 7.4 if those Shares are issued prior to the Meeting) to the issue of 97,166,621 Shares to RCF in part repayment of amounts owing under the RCF Interim Loan Facility so that the Company is able to issue those Shares without them needing to count towards the Company’s 15% new issue capacity under Listing Rule 7.1.

Resolution 3 seeks the approval of Shareholders for the purposes of Listing Rule 7.1 (or for the purposes of Listing Rule 7.4 if those Shares are issued prior to the Meeting) to the proposed issue of 9,489,209 Shares to RCF by way of the extension fee payable to RCF in connection with the RCF Interim Loan Facility, so that the Company is able to issue those Shares without them needing to count towards the Company’s 15% new issue capacity under Listing Rule 7.1.

Shareholders should be aware that the Company may proceed to issue, and by the time of the Meeting may have already issued, Shares to RCF in repayment of amounts owing under the RCF Interim Loan Facility or in payment of the extension fee for that facility irrespective of whether Shareholders approve Resolutions 2 and 3, although the issue of Shares to RCF in such circumstances would result in those Shares counting towards the Company’s 15% new issue capacity under Listing Rule 7.1.

2.3 Information requirements under Listing Rule 7.3 and 7.5 In accordance with Listing Rule 7.3 and Listing Rule 7.5, the following information is provided for the purpose of obtaining Shareholder approval for Resolutions 2 and 3:

Information Resolution 2 Resolution 3

Maximum number of securities to be issued to RCF

97,166,621 Shares. 9,489,209 Shares.

Date by which securities will be issued

RCF may elect to convert US$1 million owing under the RCF Interim Loan Facility into Shares at any time prior to 30 June 2014 (being less than 3 months after the date of the Meeting).

The Shares will be issued to RCF upon FIRB Approval being obtained (unless RCF elects to receive the extension fee in cash).

If these Shares have been issued prior to the date of

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Information Resolution 2 Resolution 3

If these Shares have been issued prior to the date of the Meeting, Shareholders are being asked to approve of that issue for the purposes of Listing Rule 7.4.

the Meeting, Shareholders are being asked to approve of that issue for the purposes of Listing Rule 7.4.

Issue price $0.011 per Share. $0.0120 per Share.

Persons to whom the Company will issue Shares

RCF. RCF.

Terms of securities Fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares and rank equally in all respects with all other Shares on issue at the time.

Fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares and rank equally in all respects with all other Shares on issue at the time.

Intended use of funds raised

Part repayment of amounts owing under the RCF Interim Loan Facility. Funds advanced under the RCF Interim Loan Facility Payment (which is being repaid via the issue of these Shares) were used to fund Keysbrook Project development expenditure.

Payment of the extension fee owing to RCF in connection with the RCF Interim Loan Facility.

Issue date If shareholder approval is obtained, the issue of the Shares would occur in one tranche by no later than 30 June 2014.

If shareholder approval is obtained, the issue of the Shares would occur in one tranche within three months of the date of the General Meeting.

Voting exclusion statement

A voting exclusion statement is included in the Notice of Meeting.

A voting exclusion statement is included in the Notice of Meeting.

2.4 Directors’ recommendation The Directors recommend that Shareholders vote in favour of Resolutions 2 and 3. No Director has any interest in the RCF Interim Loan Facility or the acquisition of Shares by RCF in the manner envisaged by Resolutions 2 and 3.

3. RESOLUTIONS 4 AND 5 – ISSUE OF SHARE UNITS AND SHARES TO PETER GAZZARD AND KEITH VULETA UNDER THE EMPLOYEE SHARE TRUST PLAN

3.1 General Resolutions 4 and 5 seek Shareholder approval for the issue of Share Units to, and subsequent acquisition of Shares by, Executive Directors Mr Peter Gazzard and Mr Keith Vuleta under the Employee Share Trust Plan.

The Employee Share Trust Plan was approved by the majority of shareholders at the Company’s Annual General Meeting held on 26 November 2013. A summary of the key features and terms of the Employee Share Trust Plan is in the Company’s 2013 Notice of Annual General Meeting, which is available on the Company’s website at www.mzi.com.au.

Mr Gazzard is the Executive Technical Director of the Company and Mr Vuleta is the Joint Company Secretary and Executive Finance Director. The Board has exercised its discretion under the terms of the Employee Share Trust Plan to invite Messrs Gazzard and Vuleta, subject to the relevant approvals being obtained, to apply for Share Units in the Employee Share Trust to a maximum value of $302,540 each.

ASX Listing Rule 10.14 requires Shareholder approval for the issue of securities in the Company to a Director under an employee incentive scheme. Accordingly, Shareholder approval is sought for the proposed issue of Share Units to Messrs Gazzard and Vuleta.

3.2 Information required for Shareholder approval Pursuant to and in accordance with the requirements of Listing Rule 10.15, the following information is provided for the purposes of obtaining Shareholder approval for Resolutions 4 and 5:

(a) as Executive Directors of the Company, Messrs Gazzard and Vuleta are related parties of the Company;

(b) the issue price of the Share Units proposed to be issued under Resolutions 4 and 5 were determined by the prevailing market value of Shares at the time that the Share Units were agreed to be issued to Messrs Gazzard and Vuleta, being $0.012 each. Accordingly, the maximum number of Shares Units which may be issued to Messrs Gazzard and Vuleta respectively will be 25,211,666 Shares;

(c) this is the first meeting at which Shareholder approval for a grant of Share Units under the Employee Share Trust Plan to Executive Directors, and the subsequent acquisition of Shares, is sought. Messrs Gazzard and Vuleta are currently the only persons referred to in Listing Rule 10.14 who are eligible to participate in the Employee Share Trust Plan;

(d) the acquisition of Share Units by each of Messrs Gazzard and Vuleta will be funded by way of a loan from the trustee of the Employee Share Trust for the respective maximum value of the Share Units of $302,540 to each of Messrs Gazzard and Vuleta. The loans are not interest bearing. In accordance with the terms of the Employee Share Trust Plan, repayment of amounts owing under these loans is not required until the relevant Share Units are cancelled and any cancellation entitlement is distributed to the holder of the relevant Share Units;

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(e) it is proposed that any Share Units will be issued to Messrs Gazzard and Vuleta no later than 14 days following the date of the Meeting and in any event, no later than 12 months after the date of Shareholder approval to the relevant issue;

(f) the Share Units proposed to be issued to Messrs Gazzard and Vuleta are subject to certain performance vesting conditions as agreed by the Board and the Company, being the achievement of a positive final investment decision in relation to the development of the Keysbrook Project and the achievement of first product sales from the Keysbrook Project;

(g) voting exclusion statements in respect of Resolutions 4 and 5 are included in the Notice of Meeting.

3.3 Corporations Act requirements Chapter 2E of the Corporations Act also requires shareholder approval to be obtained where a public company seeks to give a financial benefit to a related party (unless an exception applies). As Directors, Messrs Gazzard and Vuleta are considered to be related parties within the meaning of the Corporations Act.

One of the exceptions to the requirement to obtain shareholder approval under Chapter 2E of the Corporations Act applies where the financial benefit constitutes part of the related party’s “reasonable remuneration”. The Board (other than Messrs Gazzard and Vuleta, who are not able to make a recommendation due to their interest in Resolutions 4 and 5) considers that the grant of Share Units to Messrs Gazzard and Vuleta under the terms of the Employee Share Trust Plan, and any subsequent acquisition of Shares by those Executive Directors, constitutes a part of their respective reasonable remuneration. In reaching this conclusion, the Board has had regard to a variety of factors including market practice and the remuneration offered to persons in comparable positions at comparable companies.

For these reasons, Shareholder approval to the proposed issue of Share Units to Messrs Gazzard and Vuleta is not being sought for the purposes of Chapter 2E of the Corporations Act.

3.4 Directors’ recommendation (a) Mr Gazzard has a material personal interest in the outcome of Resolution 4 because it relates to his participation in the Employee Share

Trust Plan. Mr Gazzard did not vote on the Board resolution to approve the Board’s offer for him to participate in the Employee Share Trust Plan and the issue of the Share Units to him. Mr Gazzard declines to make a recommendation to Shareholders in relation to Resolutions 4 and 5 given his material personal interest in the outcome of Resolution 4 and potential perceived interest in relation to Resolution 5.

(b) Mr Vuleta has a material personal interest in the outcome of Resolution 5 because it relates to his participation in the Employee Share Trust Plan. Mr Vuleta did not vote on the Board resolution to approve the Board’s offer for him to participate in the Employee Share Trust Plan and the issue of the Share Units to him. Mr Vuleta declines to make a recommendation to Shareholders in relation to Resolutions 4 and 5 given his material personal interest in the outcome of Resolution 5 and potential perceived interest in relation to Resolution 4.

(c) The remaining Directors, Messrs Malcolm Randall and Chi To (Nathan) Wong recommend Shareholders vote in favour of Resolutions 4 and 5.

4. RESOLUTIONS 6 AND 7 – ISSUE OF NED OPTIONS TO MALCOLM RANDALL AND CHI TO (NATHAN) WONG 4.1 General The Company proposes to issue NED Options to Mr Malcolm Randall and Mr Chi To (Nathan) Wong (or their respective nominees), being Directors of the Company. As Directors, each of Messrs Randall and Wong are related parties of the Company.

ASX Listing Rule 10.11 requires shareholder approval for the issue of securities (including NED Options) to a related party of the Company. Further, Chapter 2E of the Corporations Act prohibits a public company from giving a financial benefit to a related party of a public company unless either the giving of the financial benefit falls within one of the nominated exceptions or shareholder approval is obtained prior to the giving of the financial benefit.

The granting of NED Options to Messrs Randall and Wong constitutes the giving of a financial benefit to a related party of the Company within the meaning of Chapter 2E of the Corporations Act. Accordingly, Shareholder approval is being sought for the grant of NED Options to each of Messrs Randall and Wong.

4.2 Information required for Shareholder Approval (Chapter 2E of the Corporations Act and Listing Rule 10.13) Pursuant to and in accordance with the requirements of section 219 of the Corporations Act and ASX Listing Rule 10.13, the following information is provided for the purposes of obtaining Shareholder approval for Resolutions 6 and 7:

(a) as Non-Executive Directors of the Company, Messrs Randall and Wong are related parties of the Company;

(b) the maximum number of NED Options (being the nature of the financial benefit being provided) to be granted are as follows:

Related Party Number

Mr Malcolm Randall (Non-Executive Chairman)

5,000,000

Mr Nathan Wong (Non-Executive Director)

3,000,000

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(c) the NED Options will be granted to Messrs Randall and Wong (or their nominees) no later than 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated the NED Options will be issued on one date;

(d) the NED Options will be granted for nil cash consideration. Accordingly no funds will be raised by the grant of the NED Options. Any funds raised from the exercise of the NED Options will be used for general working capital requirements;

(e) the terms and conditions of the NED Options are set out and summarised in Annexure D. In particular:

(i) the exercise price of the NED Options will be $0.02;

(ii) the expiry date of the NED Options will be 3 years after their date of issue;

(f) the relevant interests of Messrs Randall and Wong in securities of the Company are set out below:

Related Party Shares Options to acquire Shares

Mr Malcolm Randall 6,857,408 5,000,000 (exercise price $0.04, expiring 31 December 2015)

Mr Nathan Wong - 5,000,000 (exercise price $0.04, expiring 31 December 2015)

(g) the total director fees paid by the Company to each of Messrs Randall and Wong for the previous financial year ended 30 June 2013 and the proposed total directors’ fees payable for the current financial year ending 30 June 2014 (excluding the value of the NED Options the subject of Resolutions 6 and 7) are set out below:

Related Party 2012/13 Financial Year 2013/14 Financial Year

Mr Malcolm Randall $138,255 $140,000

Mr Nathan Wong $102,425 $90,000

(h) the value of the NED Options and the pricing methodology is set out in Annexure E;

(i) if the NED Options are granted to Messrs Randall and Wong, the total number of unlisted Options on issue (excluding the issue of the RCF Options the subject of Resolution 1) will increase from 84,500,000 to 92,500,000. If these NED Options are exercised, a total of 8,000,000 Shares would be issued. Based on the issued capital of the Company as at the last practicable date before finalising this document, this would increase the number of Shares on issue from 2,679,925,837 to 2,687,925,837 with the effect that the shareholding of existing Shareholders would be diluted by an aggregate of 0.30%, and individual dilution rates of 0.19% for Mr Randall and 0.11% for Mr Wong;

(j) the market price for Shares during the term of the NED Options would normally determine whether or not the NED Options are exercised. If, at any time any of the NED Options are exercised and the Shares are trading on ASX at a price that is higher than the exercise price of the NED Options, there may be a perceived cost to the Company;

(k) the trading history of the Shares on ASX in the 12 months before the date of this Notice is set out below:

Price Date

Highest $0.021 12 September 2013

Lowest $0.010 8 April 2014

Last $0.013 5 May 2014

(l) the Board acknowledges the grant of NED Options to Messrs Randall and Wong is contrary to Recommendation 8.2 of the ASX Corporate Governance Principles and Recommendations. However, the Board considers the grant of NED Options to Messrs Randall and Wong reasonable in the circumstances for the reasons set out below;

(i) the primary purpose of the grant of the NED Options to Messrs Randall and Wong is to motivate and reward their performance in their respective roles as Directors not to raise capital;

(ii) the Board considers that the experience and expert knowledge of Mr Randall and Mr Wong will be important at this critical time in the development of the Keysbrook Project;

(iii) the Board considers that the grant of the NED Options is an effective way to remunerate Messrs Randall and Wong for the services they provide as Directors to the Company whilst preserving the Company’s cash resources at a time when significant expenditures are likely to be incurred in the development of the Keysbrook Project;

(iv) the exercise price of the NED Options is currently significantly above the Company’s Share price as at the date of this document. As the NED Options are not transferable, Messrs Randall and Wong will only derive value from those NED Options by exercising them, which is only likely to occur if the Company’s Share price is higher than the exercise price of the NED Options; and

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(v) the Board does not consider that there are any significant opportunity costs to the Company or benefits foregone by the Company in issuing the NED Options to Messrs Randall and Wong upon the terms proposed. Each of Messrs Randall and Wong must contribute their own money to the Company to fund the exercise price of the NED Options, being an amount of $100,000 (in terms of the NED Options proposed to be issued to Mr Randall) and $60,000 (in terms of the NED Options proposed to be issued to Mr Wong);

(m) Australian International Financial Reporting Standards require the NED Options to be expensed, which is guided by AASB 2 – Share Based Payments. In accordance with AASB 2, these NED Options will be expensed in the financial year ended 30 June 2014. Expensing the NED Options will have the effect of increasing both the expenses and contributed equity of the Company. Whilst there will be a reduction in profit, there will be no impact on the net assets or the cash position or financial resources of the Company as a result of expensing the NED Options. There are no tax implications for the Company in issuing these NED Options;

(n) the number of NED Options to be issued to each of Messrs Randall and Wong has been determined based on factors such the significant contribution that each of Messrs Randall and Wong are likely to have to the Company’s ongoing success. Regard has also been given to issues such as alignment of interests to the Company through an equity holding. The Board considers the number of NED Options issued to Messrs Randall and Wong will ensure that overall Director emoluments remain competitive with market standards;

(o) voting exclusion statements in respect of Resolutions 6 and 7 are included in the Notice of Meeting.

4.3 Directors’ recommendations (a) Mr Randall has a material personal interest in the outcome of Resolution 6 because it relates to the issue of NED Options to him. Mr

Randall did not vote on the Board resolution to approve the issue of NED Options to him. Mr Randall declines to make a recommendation to Shareholders in relation to Resolutions 6 and 7 given his material personal interest in the outcome of Resolution 6 and potential perceived interest in relation to Resolution 7.

(b) Mr Wong has a material personal interest in the outcome of Resolution 7 because it relates to the issue of NED Options to him. Mr Wong did not vote on the Board resolution to approve the issue of NED Options to him. Mr Wong declines to make a recommendation to Shareholders in relation to Resolutions 6 and 7 given his material personal interest in the outcome of Resolution 7 and potential perceived interest in relation to Resolution 6.

(c) In addition to paragraphs 4.3(a) to (b) above, in view of their interest in the outcome of Resolutions 4 and 5, Messrs Gazzard and Vuleta, being the remaining Directors, decline to make a recommendation to Shareholders in relation to Resolutions 6 and 7 so as to avoid any perceived conflict of interest in making a recommendation on the issue of NED Options to other Directors.

ENQUIRIES Shareholders may contact the Company Secretary on (+61 8) 9328 9800 if they have any queries in respect of the matters set out in these documents.

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G L O S S A R Y

$ means Australian dollars. ASIC means Australian Securities and Investments Commission. Associate has the meaning given to that term in Part 1.2, Division 2 of the Corporations Act.

ASX means ASX Limited.

ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of directors of the Company.

Bridge Finance Facility means bridge finance facilities for a total amount of US$18 million more fully described in section (c) of Annexure A, forming part of the RCF Funding Package.

Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.

Chairman means chairman of the Company.

Closely Related Party of a member of the Key Management Personnel means:

(a) a spouse or child of the member; or

(b) a child of the member’s spouse; or

(c) a dependent of the member or the member’s spouse; or

(d) anyone else who is one of the member’s family and may be expected to influence the member or be influenced by the member in the member’s dealings with the Company; or

(e) a company the member controls; or

(f) a person prescribed by the Corporations Regulations 2001 (Cth).

Company or MZI means MZI Resources Limited ACN 077 221 722.

Constitution means the Company’s constitution.

Convertible Loan Facility means a US$21 million convertible loan facility more fully described in section (b) of Annexure A, forming part of the RCF Funding Package.

Corporations Act means the Corporations Act 2001 (Cth).

Directors mean the current directors of the Company.

Eligible Shareholders means Shareholders eligible to participate in the Entitlement Offer in accordance with its terms.

Employee Share Trust means the trust established to acquire Shares to be held on behalf of participants in the Employee Share Trust Plan for the purposes of the Employee Share Trust Plan, and approved by Shareholders at the 2013 AGM.

Employee Share Trust Plan means the Employee Share Trust Plan established and operated in accordance with the Employee Share Trust Deed.

Explanatory Statement means the explanatory statement accompanying the Notice.

General Meeting or Meeting means the meeting convened by the Notice.

Independent Expert means BDO Corporate Finance (WA) Pty Ltd.

Independent Expert’s Report means the independent expert’s report prepared by the Independent Expert annexed to this Notice as Annexure B.

Key Management Personnel has the same meaning as in the accounting standards. Broadly speaking this includes those persons with the authority and responsibility for planning, directing and controlling the activities of the Company (whether directly or indirectly), and includes any Directors. Keysbrook Leucoxene or KLPL means Keysbrook Leucoxene Pty Ltd (ACN 137 091 297), a wholly owned subsidiary of the Company.

Keysbrook Project means the Company’s mineral sands project located in Keysbrook, Western Australia.

MZI Group means MZI and its related bodies corporate.

NED Options means Options issued on the terms and conditions set out in Annexure D. Notice or Notice of General Meeting means this notice of general meeting including the Explanatory Statement and the Proxy Form.

Options means an option to acquire a Share.

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Proxy Form means the proxy form accompanying the Notice.

RCF means Resource Capital Fund VI L.P.

RCF Funding Package means the proposed Royalty Purchase by RCF, and the proposed provision of the Convertible Loan Facility and Bridge Finance Facility to MZI and/or KLPL by RCF. RCF Interim Loan Facility means the interim loan facility (as amended) of US$4.5 million provided by RCF to the Company.

RCF Options means Options issued on the terms and conditions set out in Annexure C. Related Bodies Corporate has the meaning given in the Corporations Act.

Resolutions means the resolutions set out in the Notice of General Meeting, or any one of them, as the context requires.

Royalty Purchase means the proposed grant to RCF of a 2% gross revenue royalty over KLPL’s interest in an area that includes the Keysbrook Project, on the terms set out in section (a) of Annexure A, forming part of the RCF Funding Package.

Senior Debt Facility means any and all of the debt facilities or loans to partially finance the development of the Keysbrook Project (which may include a project finance facility, cost overrun facility, working capital facility, bank guarantee facility and hedging facilities) underwritten by RMB Australia Holdings Ltd to the Company.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

Share Unit means a unit in the Employee Share Trust which comprises a beneficial interest in a Share held on trust in accordance with the rules of the Employee Share Trust Plan.

WST means Western Standard Time as observed in Perth, Western Australia.

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A N N E X U R E A – S U M M A R Y O F K E Y T E R M S O F R C F F U N D I N G P A C K A G E

The RCF Funding Package comprises three components, being a Royalty Purchase, a Convertible Loan Facility and Bridge Finance Facility.

The key terms of each component of the RCF Funding Package is summarised below.

(a) Royalty Purchase Royalty type 2% gross revenue royalty granted to RCF. The royalty applies to any revenue received (or deemed to be received) from

the sale of any mineral or other product extracted or recovered from the Royalty Area by the Company and any of its subsidiaries (including KLPL).

Purchase price US$3.5 million payable to KLPL

Royalty Area The area bounded by the following co-ordinates:

Western boundary – Western Australian coastline

Eastern boundary – E116º01’48”

Northern boundary – S32º13’30”

Southern boundary – S33º22’30”,

which area includes the Keysbrook Project.

Conditions precedent to purchase:

Unless waived by RCF, completion of the Royalty Purchase is conditional upon, and contemporaneous with, drawdown under the Convertible Loan Facility.

Use of funds To fund partial repayment of amounts drawn down under the RCF Interim Loan Facility.

Undertakings If circumstances arise under which the Company agrees to enter into a transaction under which it will cease to be the ultimate holding company of the group (where that transaction is within the control of the Company) then MZI must ensure that the transaction requires the party that is to become the new ultimate holding company of the group upon completion of the relevant transaction to agree to be bound by the royalty arrangements.

Pre-emptive rights KLPL has a pre-emptive right in the event that RCF seeks to sell the royalty to a third party.

Withholding tax KLPL has agreed to indemnify RCF for any withholding tax applied to the royalty, provided always that the indemnity is limited at all times to no more than a 5% withholding tax rate.

(b) Convertible Loan Facility Convertible Loan Facility Amount

US$21 million, to be provided by way of a single drawdown.

Use of funds To provide funding support for the balance of the equity contribution required for completion of Keysbrook Project development activities and to provide funding for the establishment of a cost overrun account to the extent required under the Senior Debt Facility.

Conditions precedent to drawdown:

Drawdown of the Convertible Loan Facility is conditional upon following conditions precedent, in addition to the general conditions precedent to the provision of the RCF Funding Package generally (outlined below), being satisfied:

• Evidence that committed funding is available to be provided to the Company to fully fund Keysbrook Project development costs;

• Evidence that all conditions precedent to initial drawdown under the Senior Debt Facility (other than those that would be satisfied by drawing down on the RCF Funding Package) are satisfied;

• Payment of the acceptance fee and establishment fee in relation to the facility; and

• Satisfaction of other conditions precedent (such as representations remaining true and correct, no material adverse change, no default or potential event of default occurring etc.) customary for facilities of this nature.

Availability Subject to satisfaction of the conditions precedent to drawdown, the Convertible Loan Facility is available until 30 June 2014 (or such later date agreed by RCF in its absolute discretion).

Maturity Date 54 months from drawdown. Prepayment of the Convertible Loan Facility is not permitted.

Interest Interest is payable on the Convertible Loan Facility at a rate of 10% per annum, payable quarterly in arrears. The Company may elect to pay interest by way of the issue of Shares, with any Shares to be issued at an issue price equal to the 5 day VWAP of Shares prior to the relevant interest payment date.

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Conversion RCF will have the right (but not the obligation) to convert any or all of the principal amount outstanding under the Convertible Loan Facility into Shares at a conversion price equal to the higher of:

(a) 120% of the lower of:

(i) A$0.01373; and

(ii) the 30 trading day VWAP as at the date of drawdown on the Convertible Loan Facility; and

(b) A$0.01 (or where the Company has issued or agreed to issue Shares at a lower subscription price (other than under an employee incentive scheme), that lower price).

The 20% premium applied to the price of Shares upon Conversion will be reduced to 0% if the Company is unable to demonstrate, before the date that is 3.5 years post first production, sufficient additional ore reserves (at grades and assemblages not materially different to those in the initial ore reserve) that will allow mining and processing to continue at materially similar rates as initially budgeted for at least 3.5 years immediately post the initial mine life of 5.5 years.

If the conversion price is the price in paragraphs (a)(i) or (b) above, the exchange rate used to calculate the number of Shares to be issued will be A$1:US$0.9026. In all other circumstances, the exchange rate used to determine the issue price of Shares will be calculated by reference to the time at which the right to be issued (or to issue) Shares arises.

Fees In consideration of providing the Convertible Loan Facility, RCF is to receive:

(a) an acceptance fee of 44,000,000 Options with a 3 year term from the date of issue and an exercise price of $0.01648 (being 120% of $0.01373); and

(b) an establishment fee upon satisfaction of certain conditions precedent to drawdown on the Convertible Loan Facility equal to 3% of the Convertible Loan Amount, issued in Shares at an issue price of $0.01373.

(c) Bridge Finance Facility Bridge Finance Facility Amount

Tranche A - US$5 million provided to KLPL.

Tranche B – US$13 million provided to the Company

Use of funds Tranche A - to provide funding to establish any debt service reserve account to the extent required under any Senior Debt Facility provided to finance the development of the Keysbrook Project.

Tranche B - provide funding support for the Company’s corporate purposes and to provide funding support for the balance of the equity contribution required for completion of the Keysbrook Project development activities.

Conditions precedent to drawdown:

Drawdown on both tranches of the Bridge Finance Facility is conditional upon drawdown having occurred under the Convertible Loan Facility and all fees and expenses payable to RCF in connection with the RCF Funding Package having been paid.

In addition, drawdown on Tranche A is conditional upon Convertible Loan Facility is conditional upon:

• all conditions precedent to drawdown under any Senior Debt Facility provided to finance the development of the Keysbrook Project (other than any condition relating to the establishment of a debt service reserve account which would be satisfied by drawing down on Tranche A) have been satisfied;

• evidence that a debt service reserve account is required to be funded in accordance with the terms of any Senior Debt Facility.

Availability Subject to satisfaction of the conditions precedent to drawdown:

• Tranche A is available until 31 March 2015 (or such later date agreed by RCF in its absolute discretion); and

• Tranche A is available until 30 June 2014 (or such later date agreed by RCF in its absolute discretion).

Maturity Date 12 months from the date of first draw of the relevant Tranche. The Company can pre-pay the whole or any part of the facility without penalty. Once repaid, the relevant portion cannot be redrawn.

Subject to the consent of the providers of the Senior Debt Facility, any equity raised by MZI must be used to repay amounts outstanding under the Bridge Loan Facility.

Interest Interest is payable on amounts drawn down under the Bridge Loan Facility at a rate of 10% per annum, payable quarterly in arrears. The Company may elect to pay interest by way of the issue of Shares, with any Shares to be issued at an issue price equal to the 5 day VWAP of Shares prior to the relevant interest payment date.

Conversion protection

If a Tranche of the Bridge Loan Facility is not repaid before its maturity date, it will automatically convert into a convertible loan facility on terms substantially the same as the Convertible Loan Facility (the key terms of which are outlined above) except that:

• the conversion price mechanism will be 110% (as opposed to 120%) of the lower of A$0.01373 and the relevant VWAP subject always to the premium applied being reduced to 0% if the Company is unable to satisfy the

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requisite mine life extension test; and

• the maturity date of that convertible loan facility will be 54 months from the date that either tranche of the Bridge Loan Facility converts into a convertible loan facility. This means that if both tranches of the Bridge Loan Facility convert into a convertible loan facility, those facilities will mature on the same date regardless of when the relevant tranche of the Bridge Loan Facility was first drawn down..

Fees In consideration of providing the Bridge Finance Facility, RCF is entitled to receive:

• an acceptance fee of 35,500,000 Options with a 3 year term from the date of issue and an exercise price of $0.01648 (being 120% of $0.01373); and

• an establishment fee in respect to each Tranche, payable upon satisfaction of certain conditions precedent to drawdown on the relevant Tranche, equal to 3% of the total amount of that Tranche, issued in Shares at an issue price of $0.01373; and

• a commitment fee equal to 10% per annum on any unutilised portion of the Bridge Finance Facility, payable in arrears on each interest payment date up until the earlier of the end of the Availability Period for that facility and the date that the facility is cancelled in full. The Company may elect to pay the commitment fee by way of the issue of Shares, with any Shares to be issued at an issue price equal to the 5 day VWAP of Shares prior to the relevant interest payment date.

(d) Conditions precedent to the RCF Funding Package The provision of the RCF Funding Package is subject to satisfaction of the following conditions precedent:

• Execution of full form agreements relating to the Royalty, Convertible Loan Facility, Bridge Finance Facility, Senior Debt Facility and associated security arrangements (including inter-creditor arrangements with the senior lenders), each in a form satisfactory to RCF;

• Completion of satisfactory legal due diligence and confirmatory technical, financial and permitting due diligence on the Company and the Keysbrook Project (including completion of a confirmatory dry plant metallurgical test work programme (with the results of that programme being reasonably acceptable to RCF) and RCF being satisfied that the Company has implemented project management best practices for a project of similar scale and complexity to the Keysbrook Project);

• All government and regulatory approvals (including Foreign Investment Review Board and MZI shareholder approvals) being obtained;

• Execution of key agreements in relation to the Keysbrook Project, including offtake agreements, landowner agreements, processing agreements, the construction contract and requisite logistics contracts to transport product from Keysbrook Project to customers.

• The Keysbrook Project budget, schedule and base case financial model being adopted by the Company in a form agreed with the senior lenders and satisfactory to RCF.

Either party may terminate the RCF Funding Package if these conditions precedent are not satisfied by 30 June 2014 or such later date as RCF may agree.

(e) Security arrangements The RCF Funding Package is to be secured by way of general security over all of MZI’s assets. The Company is currently working with RCF and the proposed senior lenders to agree the security structure that will be required as part of these facilities, although it is anticipated that a security trust will be established for the benefit of securing amounts provided under the RCF Funding Package as well as under the Senior Debt Facility. It is anticipated that amounts drawn down under the RCF Funding Package will be subordinated to any amounts owing under the Senior Debt Facility.

(f) Other material terms applicable to the RCF Funding Package The Convertible Loan Facility and the Bridge Finance Facility will contain representations and warranties, undertakings and events of default which are customary for facilities of that nature and consistent with any Senior Debt Facility established in connection with the development of the Keysbrook Project, including restraints on creating liabilities and/or dealing with assets of the MZI Group until the facilities are repaid. Any default under the terms of the Senior Debt Facility is likely to also trigger an event of default under the RCF Funding Package. RCF’s rights under the RCF Funding Package are in addition to rights already granted to RCF in connection with its investment in the Company in July 2013 (such as restrictions on Share issues and RCF’s ability to appoint a nominee to the Company’s Board of Directors).

The Company has agreed to pay RCF a break fee (equal to 3% of the total amounts available for drawdown under the relevant facility) if the Company does not proceed to draw down on the Convertible Loan Facility or the Bridge Finance Facility in circumstances where:

(a) the relevant facility is available for drawdown;

(b) the MZI Group has not acted in good faith in seeking to satisfy the conditions precedent to drawdown of those facilities or are otherwise in material breach of their obligations under the RCF Funding Package; or

(c) there has been a change of control of the Company or its wholly-owned subsidiary KLPL without RCF’s prior written consent.

In the event that Shareholders do not approve Resolution 1, the Company is required to pay RCF $380,000 in cash, for the acceptance fees for offering to provide the RCF Funding Package which would otherwise be paid in the form of RCF Options.

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Page 27 of 30

A N N E X U R E B – I N D E P E N D E N T E X P E R T ’ S R E P O R T

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MZI RESOURCES LIMITED Independent Expert’s Report

Opinion:

1. Funding Transaction: Not Fair but Reasonable

2. Security Transaction: Fair and Reasonable

22 May 2014

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BDO CORPORATE FINANCE (WA) PTY LTD

Financial Services Guide

22 May 2014

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (‘we’ or ‘us’ or ‘ours’ as appropriate) has been engaged by MZI Resources Limited (‘MZI’) to provide an independent expert’s report on the proposed issue of shares under various components of the proposed funding package of up to US$42.5 million and an additional US$1 million short-term facility provided by Resource Capital Fund VI L.P. (‘RCF’). You will be provided with a copy of our report as a retail client because you are a shareholder of MZI. Financial Services Guide In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (‘FSG’). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about:

Who we are and how we can be contacted;

The services we are authorised to provide under our Australian Financial Services Licence, Licence No. 316158;

Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;

Any relevant associations or relationships we have; and

Our internal and external complaints handling procedures and how you may access them. Information about us BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business. Financial services we are licensed to provide We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients. When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you. General Financial Product Advice We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. F

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Financial Services Guide Page 2

Fees, commissions and other benefits that we may receive We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee payable to BDO Corporate Finance (WA) Pty Ltd for this engagement is approximately $70,000. Except for the fees referred to above, neither BDO, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report. Remuneration or other benefits received by our employees All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from MZI for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report. Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. Complaints resolution Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872. When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service (‘FOS’). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is 12561. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below.

Financial Ombudsman Service

GPO Box 3

Melbourne VIC 3001

Toll free: 1300 78 08 08

Facsimile: (03) 9613 6399

Email: [email protected] Contact details You may contact us using the details set out on page 1 of the accompanying report.

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http://www.fos.org.au/

TABLE OF CONTENTS

1. Introduction 1

2. Summary and Opinion 2

3. Scope of the Report 6

4. Outline of the Transactions and the Funding Package 9

5. Profile of MZI 18

6. Profile of Resource Capital Fund VI L.P. 24

7. Economic analysis 25

8. Industry analysis 26

9. Fairness approach adopted 29

10. Valuation approach adopted 30

11. Pre-Transaction Value of MZI’s shares 33

12. Valuation of MZI Post-Transaction 54

13. Are the Transactions fair? 57

14. Are the Transactions reasonable? 58

15. Conclusion 62

16. Sources of information 63

17. Independence 63

18. Qualifications 64

19. Disclaimers and consents 64

Appendix 1 – Glossary

Appendix 2 – Valuation Methodologies

Appendix 3 – Discount Rate

Appendix 4 - Independent Technical Assessment Report prepared by SRK Consulting (Australasia) Pty Ltd For

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BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

22 May 2014

The Directors

MZI Resources Limited

Level 2, 100 Royal Street

EAST PERTH WA 6004

Dear Directors

INDEPENDENT EXPERT’S REPORT

1. Introduction

On 30 June 2013, Resource Capital Fund VI L.P. (‘RCF’) agreed to subscribe for a cornerstone stake of 12%

in MZI Resources Limited (‘MZI’ or ‘the Company’). As part of the consideration for agreeing to invest in

MZI, RCF was granted a first right of refusal and matching rights in relation to the provision of any

mezzanine or hybrid financing required to be undertaken in connection with the development of MZI’s

flagship Keysbrook mineral sands project in Western Australia (‘Keysbrook Project’ or ‘the Project’). RCF

has since increased its shareholding in the Company to 13.8%.

On 2 October 2013, MZI announced that it had entered into a commitment letter with RCF, under which

RCF conditionally agreed to provide a funding package of up to US$41.5 million, which has subsequently

been increased to US$42.5 million, to MZI and its subsidiary, Keysbrook Leucoxene Pty Ltd (‘KLPL’)

(‘Keysbrook Funding Package’ or ‘Funding Package’).

On 19 December 2013, MZI announced that RCF had agreed to provide a US$3.5 million short-term loan

facility, bearing interest at 10% per annum, to MZI (‘RCF Interim Facility’) to ensure that it has sufficient

funds to continue the early-stage engineering, design work and other activities at its Keysbrook Project.

On 1 April 2014, MZI announced that RCF has agreed to make available an additional US$1.0 million of

funding (‘Additional Amount’) to ensure that MZI has sufficient funds to continue the engineering, design

work and other activities at its Keysbrook Project. The Additional Amount was drawn on 23 April 2014.

MZI plans to repay the RCF Interim Facility, which is due to be repaid on 30 June 2014, using proceeds

from the drawdown of funds from the Keysbrook Funding Package.

The Funding Package is subject to the approval of the shareholders of MZI, to be approved as Resolution 1,

in MZI’s notice of meeting document dated on or around the date of this report (‘Notice of Meeting’).

The Funding Package comprises:

a royalty purchase, which involves the payment of US$3.5 million by RCF in return for the grant to RCF

of a 2% gross revenue royalty (‘Royalty Purchase’) over an area that includes the Keysbrook Project;

a convertible loan facility of US$21 million (‘Convertible Loan Facility’) to be provided to MZI and its

wholly owned subsidiary, KLPL; and

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bridging finance facilities for a total amount of US$18 million in two separate tranches, with Tranche

A being US$5 million provided to KLPL and Tranche B being US$13 million provided to MZI (‘Bridge

Finance Facility’).

MZI and KLPL may collectively be referred to as ‘the Group’. MZI and KLPL will grant security on the

entire Group’s assets to RCF to secure the repayment of monies provided under the Funding Package.

All dollar amounts are in Australian dollars unless otherwise indicated.

2. Summary and Opinion

2.1 Purpose of the report

The directors of MZI have requested that BDO Corporate Finance (WA) Pty Ltd (‘BDO’) prepare an

independent expert’s report (‘our Report’) to express an opinion as to whether or not the following

transactions contemplated under the Funding Package are fair and reasonable to the non-associated

shareholders of MZI (‘Shareholders’):

the issue of shares that may occur under the conversion terms of the Convertible Loan Facility;

the issue of shares that may occur from the exercise of the options issued to RCF in satisfaction of the

acceptance fees payable in connection with the Convertible Loan Facility and the Bridge Finance

Facility as detailed in section 4 of our Report;

the issue of shares to RCF in satisfaction of the establishment fees payable in connection with the

Convertible Loan Facility and the Bridge Finance Facility as detailed in section 4 of our Report;

the issue of shares that may occur in satisfaction of interest payable under the Convertible Loan

Facility and the Bridge Finance Facility;

the issue of shares that may occur in satisfaction of commitment fees that may become payable under

the Bridge Finance Facility from time to time; and

the issue of shares that may occur under the conversion terms of any convertible loan facility into

which the Bridge Finance Facility may convert into.

The Royalty Purchase also requires Shareholders’ approval as a result of KLPL disposing of a substantial

asset (being the grant of a 2% gross revenue royalty) to RCF, a substantial holder of MZI.

We refer to the collective transactions above that are contemplated under the Funding Package as ‘the

Funding Transaction’.

Our Report is also required to express an opinion as to whether the provision of security over all the assets

of the Group to RCF to secure amounts payable under the terms of the Funding Package (‘Security

Transaction’) is fair and reasonable to Shareholders.

We refer to the Funding Transaction and the Security Transaction collectively as ‘the Transactions’.

Our Report is prepared pursuant to the following sections of the Corporations Act and the Australian

Securities Exchange (‘ASX’) Listing Rules, and is to be included in the Notice of Meeting of MZI in order to

assist Shareholders in their decision whether to approve the Transactions:

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Funding Transaction – section 611 (item 7) of the Corporations Act as a result of RCF increasing its

voting power in the Company from the existing 13.8% to a maximum of 73.9% and ASX Listing Rule 10.1

as a result of KLPL disposing of a substantial asset (being the grant of a 2% gross revenue royalty to

RCF under the Royalty Purchase) to a substantial holder (being RCF who currently holds a relevant

interest of 13.8% of MZI’s issued share capital); and

Security Transaction – ASX Listing Rule 10.1 as a result of the Group disposing of a substantial asset

(being the provision of security over all the assets of the Group to RCF to secure the repayment of

monies provided under the Funding Package) to a substantial holder of MZI (being RCF who currently

holds a relevant interest of 13.8% of MZI’s issued share capital).

While our Report is required specifically to provide an opinion on the Transactions, Resolution 1 in the

Notice of Meeting requires the Funding Package as a whole to be approved by Shareholders. Accordingly,

the Transactions are not independent, but rather, all components of the Funding Package need to be

considered together. This is considered through our pre-transaction and post-transaction analyses detailed

in the following sections of our Report.

2.2 Approach

Our Report has been prepared having regard to Australian Securities and Investments Commission (‘ASIC’),

Regulatory Guide 74 (‘RG 74’), ‘Acquisitions Approved by Members’, Regulatory Guide 111 (‘RG 111’),

‘Content of Expert’s Reports’ and Regulatory Guide 112 (‘RG 112’) ‘Independence of Experts’.

In arriving at our opinion, we have considered the Transactions as follows:

Funding Transaction - how the value of an MZI share prior to the Funding Transaction on a control

basis compares to the value of an MZI share following the Funding Transaction on a minority basis

(which effectively contemplates the provision of the Funding Package as their individual components

are not separable under the Funding Package); and

Security Transaction – how the value of the proceeds of the sale of the secured assets that would be

provided to RCF to secure the repayment of monies owed under the Funding Package, in the event of

a default, compares to the value of the liabilities that would be settled.

We also considered:

the likelihood of a superior alternative offer being available to MZI;

other factors which we consider to be relevant to Shareholders in their assessment of the

Transactions; and

the position of Shareholders should the Transactions not proceed.

2.3 Opinion

We have considered the terms of the Transactions as outlined in the body of this report and have

concluded that, in the absence of a superior offer, the:

Funding Transaction is not fair but reasonable to Shareholders; and

Security Transaction is fair and reasonable to Shareholders.

We have assessed the Funding Transaction as being not fair because the value of an MZI share on a

minority basis following approval of the Funding Transaction is lower than the value of an MZI share on a

control basis prior to approval of the Funding Transaction (see section 2.4).

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We have assessed the Funding Transaction to be reasonable because we consider the advantages of

approving the Funding Transaction outweigh the disadvantages of approving the Funding Transaction (see

section 2.5).

We have assessed the Security Transaction as being fair because value of the proceeds of the sale of the

secured assets that would be provided to RCF to secure the payment of monies owing under the royalty or

the repayment of monies owed under the Funding Package in the event of a default is equivalent or lower

than the value of the liabilities that would be settled (see section 2.4).

We have assessed the Security Transaction to be reasonable because we consider the advantages of

approving the Security Transaction outweigh the disadvantages of approving the Security Transaction (see

section 2.5).

2.4 Fairness

In section 13, we determined that the value of an MZI share prior to the Funding Transaction (on a control

basis) is higher than the value of an MZI share after approval of the Funding Transaction (on a minority

interest basis) under both the Maximum Scenario and Minimum Scenario (as defined in section 4.6):

Ref

Low Preferred High

$ $ $

Value of an MZI share on a controlling basis prior to the Funding

Transaction

11.4 0.0037 0.0044 0.0052

Value of an MZI share on a minority interest basis following the Funding

Transaction (under the Maximum Scenario)

12.1 0.0028 0.0035 0.0043


Transaction (under the Minimum Scenario)

12.1 0.0016 0.0029 0.0044

Source: BDO analysis

The above valuation ranges are graphically presented below:


0.0000 0.0010 0.0020 0.0030 0.0040 0.0050 0.0060

Value of an MZI share on a minority interest basis following the Funding Transaction (Minimum

Scenario)

Value of an MZI share on a minority interest basis following the Funding Transaction (Maximum

Scenario)

Value of an MZI share on a controlling basis prior to the Funding Package

Value ($)

Valuation Summary

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We also concluded that the value of the proceeds of the sale of the secured assets that would be provided

to RCF to secure the payment of monies owing under the royalty or the repayment of monies owed under

the Funding Package in the event of a default is equivalent or lower than the value of the liabilities that

would be settled.

The above pricing indicates that, in the absence of any other relevant information, and a superior offer:

the Funding Transaction is not fair to Shareholders; and

the Security Transaction is fair to Shareholders.

2.5 Reasonableness

We have considered the analysis in section 14 of this report, in terms of both:

the advantages and disadvantages of the Transactions; and

other considerations, including the position of Shareholders if the Transactions do not proceed and the

consequences of not approving the Transactions.

In our opinion, the position of Shareholders if the Transactions are approved is more advantageous than

the position if the Transactions are not approved:

the Funding Transaction is reasonable to Shareholders; and

the Security Transaction is reasonable to Shareholders.

Accordingly, in the absence of any other relevant information and/or a superior proposal we believe that

the Transactions (and hence Resolution 1), are reasonable for Shareholders.

The respective advantages and disadvantages considered are summarised below:

ADVANTAGES AND DISADVANTAGES

Section Advantages Section Disadvantages

Funding Transaction

14.1.1 Ability to fund the Keysbrook Project into

production

14.2.1 The Funding Transaction is not fair

14.1.2 Provides the equity necessary to secure

the Project Debt Facilities

14.2.2 Dilution of existing shareholders

14.1.3 The Share Issue will put the Company

under less cash flow strain

14.2.3 Loss of control

14.1.4 Strengthens the Company’s relationship

with its cornerstone investor

14.2.4 Royalty obligations may place cash flow risks

on the Project

14.1.5 Strengthening of MZI’s balance sheet

14.1.6 Increase in market capitalisation

14.1.7 Increased potential for Shareholders to

receive dividends in the future

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ADVANTAGES AND DISADVANTAGES

Section Advantages Section Disadvantages

Security Transaction

14.1.8 The Security Transaction is fair. RG 111

states that an offer is reasonable if it is fair.

14.2.5 Onerous restrictions placed on the Company’s

ability to deal with its assets

14.1.9

The provision of security enables the

Company to obtain the debt funding that it

requires and the provision of security for

debt funding purposes is not unusual

Other key matters we have considered include:

Section Description

14.3.1 Alternative proposals

14.3.2 Practical level of control

14.3.3 The Transaction is unlikely to deter a takeover offer being made in the future

14.3.4 Consequences of not approving the Funding Package

Repayment of the RCF Interim Facility

Need to find alternative funding to fund the Keysbrook Project into production

Potential impact on MZI’s share price

3. Scope of the Report

3.1 Purpose of the Report

Funding Transaction

The Funding Transaction would result in RCF increasing its voting power to more than 20% in MZI. Section

606 of the Corporations Act expressly prohibits the acquisition of 20% of the issued shares of a public

company, unless the acquisition proceeds through one of the permitted “gateways”.

Section 611 (item 7) of the Corporations Act permits such an acquisition if the shareholders of that entity

have agreed to the issue of such shares. This agreement must be by resolution passed at a general

meeting at which no votes are cast in favour of the resolution by any party who is associated with the

party acquiring the shares, or by the party acquiring the shares. Section 611 (item 7) of the Corporations

Act states that shareholders of the company must be given all information that is material to the decision

on how to vote at the meeting.

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Regulatory Guide 74 issued by ASIC deals with ‘Acquisitions Approved by Members’. It states that the

obligation to supply shareholders with all information that is material can be satisfied by the non-

associated directors of MZI, by either:

undertaking a detailed examination of the Share Issue themselves, if they consider that they have

sufficient expertise; or

by commissioning an independent expert's report.

The directors of MZI have commissioned this independent expert's report to satisfy this obligation.

Additionally, the Royalty Purchase would require Shareholders’ approval under ASX Listing Rule 10.1 as a

result of KLPL disposing of a substantial asset (being the grant of a 2% gross revenue royalty to RCF under

the Royalty Purchase) to a substantial holder (being RCF who currently holds a relevant interest of 13.8%

of MZI’s issued share capital). The regulatory requirements under ASX Listing Rule 10.1 are described in

more detail in the paragraphs to follow.


ASX Listing Rule 10.1 requires that a listed entity must obtain shareholders’ approval before it acquires or

disposes of a substantial asset, when the consideration to be paid for the asset or the value of the asset

being disposed constitutes more than 5% of the equity interest of that entity at the date of the last

audited accounts.

ASX Listing Rule 10.1 applies where the vendor or acquirer of the relevant assets is a related party or a

substantial holder of the listed entity. RCF is a substantial holder through its existing relevant interest of

13.8% in the issued share capital of MZI.

ASX Listing Rule 10.10.2 requires the Notice of Meeting for shareholders’ approval to be accompanied by a

report by an independent expert expressing their opinion as to whether the transaction is fair and

reasonable to the shareholders whose votes are not to be disregarded in respect of the transaction (non-

associated shareholders).

Accordingly, an independent expert’s report is required for the Security Transaction. The report should

provide an opinion by the expert stating whether or not the terms and conditions in relation thereto are

fair and reasonable to non-associated shareholders of MZI.

3.2 Regulatory guidance

Neither the ASX Listing Rules nor the Corporations Act defines the meaning of ‘fair and reasonable’. In

determining whether the Transactions are fair and reasonable, we have had regard to the views expressed

by ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert

should consider to assist security holders to make informed decisions about transactions.

Funding Transaction – A control transaction

RG 111 suggests that where the transaction is a control transaction, the expert should focus on the

substance of the control transaction rather than the legal mechanism to effect it. RG 111 suggests that

where a transaction is a control transaction, it should be analysed on a basis consistent with a takeover

bid. In our opinion, the Funding Transaction is a control transaction as defined by RG 111 and we have

therefore assessed the Funding Transaction as a control transaction to consider whether, in our opinion, it

is fair and reasonable to Shareholders.

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Although the Royalty Purchase requires approval under ASX Listing Rule 10.1, RG 111.63 states that an

expert need only conduct one analysis of whether the transaction is ‘fair and reasonable’ even if the

report has been prepared for a reason other than the transaction being a related party transaction (for

example, if item 7 of section 611 approval is also required). Therefore, we have included our

consideration of the Royalty Purchase as part of our consideration of the Funding Transaction.

Security Transaction – A related party transaction

RG 111 suggests that, where an expert assesses whether a related party transaction is ‘fair and

reasonable’ for the purposes of ASX Listing Rule 10.1, this should not be applied as a composite test —

that is, there should be a separate assessment of whether the transaction is ‘fair’ and ‘reasonable’, as in

a control transaction. An expert should not assess whether the transaction is ‘fair and reasonable’ based

simply on a consideration of the advantages and disadvantages of the proposal.

We do not consider the Security Transaction to be a control transaction.

3.3 Adopted basis of evaluation

RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the

value of the securities, the subject of the offer. This comparison should be made assuming a

knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious,

seller acting at arm’s length. RG 111 states that when considering the value of the securities subject of

the offer in a control transaction the expert should consider this value inclusive of a control premium.

Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if

despite being ‘not fair’, the expert believes that there are sufficient reasons for security holders to

accept the offer in the absence of any higher bid.

Funding Transaction

Having regard to the above, we have completed this comparison in two parts:

Compared the value of an MZI share before approving the Funding Transaction on a control basis and

after approving the Funding Transaction on a minority basis (fairness – see section 13 ‘Are the

Transactions Fair?’); and

an investigation into other significant factors to which Shareholders might give consideration, prior to

approving the resolution, after reference to the value derived above (reasonableness – see section 14

‘Are the Transactions Reasonable?’).


In the case of the Security Transaction, the provision of a security interest to RCF over all assets and

undertakings of the Group to secure the payment of monies owing under the royalty and the repayment of

the monies owed under the Funding Package under a general security deed is the subject of the offer.

As stated in Section 3.2, we do not consider that the Security Transaction to be a control transaction. As

such, we have not included a premium for control when considering the value of the relevant assets of the

Group to be disposed.

Having regard to the above, BDO has completed this comparison in two parts:

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a comparison between the value of the assets being disposed and the value of the consideration

(fairness – see section 13 ‘Are the Transactions Fair?’); and

an investigation into other significant factors to which Shareholders might give consideration, prior to

approving the resolution, after reference to the value derived above (reasonableness – see section 14

‘Are the Transactions Reasonable?’).

Valuation assignment

This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards

Board professional standard APES 225 ‘Valuation Services’ (‘APES 225’).

A Valuation Engagement is defined by APES 225 as follows:

‘an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer

is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a

reasonable and informed third party would perform taking into consideration all the specific facts and

circumstances of the Engagement or Assignment available to the Valuer at that time.’

This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.

4. Outline of the Transactions and the Funding Package

4.1 The Funding Package

On 2 October 2013, MZI announced that it had entered into a commitment letter with RCF, under which

RCF conditionally agreed to provide a funding package of up to US$41.5 million to MZI and KLPL for the

development of the Keysbrook mineral sands project in Western Australia. In April 2014, RCF agreed to

increase the funding package to a total of US$42.5 million.

The Funding Package is subject to the approval of Shareholders, to be approved as Resolution 1 in MZI’s

Notice of Meeting.

The Funding Package comprises:

the Royalty Purchase, which involves the payment to KLPL of US$3.5 million in return for the grant to

RCF of a 2% gross revenue royalty over an area that includes the Keysbrook Project;

the Convertible Loan Facility of US$21 million to be provided to MZI and KLPL; and

the Bridge Finance Facility for a total amount of US$18 million in two separate tranches, with Tranche

A being US$5 million provided to KLPL and Tranche B being US$13 million provided to MZI.

MZI proposes to use the funds provided to the Company under the Royalty Purchase to repay US$3.5

million owed under the RCF Interim Facility. MZI proposes to repay the Additional Amount by way of the

issue of shares to RCF at 1.1 cents per share.

The balance of the Funding Package is expected to provide the equity/mezzanine finance portion of the

Keysbrook Project, enabling MZI to obtain senior debt facilities from commercial banks. On 10 April 2014,

MZI announced that it had secured approximately US$64 million in project debt facilities (‘Project Debt

Facilities’) from RMB Australia Holdings Limited (‘RMB’) as underwriter for the full amount, and arranged

by RMB Resources Limited (‘RMB Resources’).

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The Project Debt Facilities comprise:

a US$50 million debt facility, a construction and amortising term loan with final repayment on 31

December 2018, bearing interest at a margin of 4.75% per annum above the US$ LIBOR (London

Interbank Offer Rate) pre-project completion and a margin of 4.25% per annum above the US$ LIBOR

post-project completion (‘Senior Debt Facility’).

a US$3 million working capital facility, bearing interest at a margin of 4% per annum above the US$

LIBOR, to be available from the commencement of mining of ore and production at the Project; and

a guarantee amount of up to A$12.124 million to provide bank guarantees securing the Keysbrook

Project’s obligations under Western Australian Environmental Protection Agency approvals and

landowner agreements, which will be available for the term of the Senior Debt Facility.

The Project Debt Facilities are subject to the agreement and execution of formal financing and security

documentation.

The Funding Package provided by RCF and the Project Debt Facilities are expected to put MZI in a position

to commence construction of the Keysbrook Project in mid 2014, subject to satisfaction of all conditions

required for drawdown of funds, with first production currently scheduled for mid 2015.

Key conditions precedent include, but are not limited to, the following:

execution of all legal documents relating to the Funding Package and the Project Debt Facilities, as

well as satisfactory inter-creditor agreement with lenders of senior debt funds;

legal, technical, financial and permitting due diligence in connection with MZI and KLPL;

all approvals to the transactions contemplated by the term sheet to be obtained;

grant of security of all the assets of MZI and its subsidiaries in favour of RCF and RMB;

execution of key project documents including but not limited to off-take and processing agreements,

construction, port services, transport and logistics contracts; and

other specific requirements such as confirmation of programmes, project budgets and project

schedules reasonably acceptable to RCF.

Other conditions that the Funding Package is subject to are set out in the Notice of Meeting.

4.2 RCF Interim Facility

Key terms of the RCF Interim Facility are summarised below:

Quantum - US$4.5 million (including the Additional Amount of US$1.0 million);

Use of funds – to fund the early engineering, design work and other activities at its Keysbrook Project

while it finalises longer-term debt funding;

Interest rate – interest rate is fixed at 10% per annum and capitalised on 30 day intervals so that

interest accrued but unpaid is added to the principal outstanding;

Repayment date – to be repaid by 30 June 2014 including a variation to extend the repayment date of

the RCF Interim Facility from 31 March 2014;

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Extension fee – 3% of the RCF Interim Facility of US$3.5 million (or approximately US$105,000)

(‘Extension Fee’), to be paid via the issue of MZI shares at 1.2 cents per share unless RCF elects

otherwise; and

Repayment – US$3.5 million to be repaid using proceeds from the drawdown of the Royalty Purchase

and US$1.0 million to be repaid by the issue of shares at 1.1 cents per share on condition that

approval is obtained to increase RCF’s shareholding above 13.8% under the Foreign Acquisition and

Takeovers Act.

4.3 Royalty Purchase

Key terms of the Royalty Purchase to be granted to KLPL with MZI as guarantor are summarised below:

Royalty type – a 2% gross revenue royalty granted to RCF, applied to revenue received or deemed to

be received from the sale of any mineral or other product extracted or recovered from an area that

includes the Keysbrook Project (by MZI and any of its subsidiaries including KLPL) and paid quarterly in

arrears by KLPL;

Purchase price – US$3.5 million payable to KLPL for the royalty stream granted to RCF;

Use of funds – to provide funding support for the balance of the equity contribution required for

completion of the Project development activities, which the Company intends to use to repay amounts

owing under the RCF Interim Facility; and

Security – the security is first ranking against all KLPL interests in land and mining agreements in the

area subject to the Royalty Purchase.

Other terms of the Royalty Purchase are set out in the Notice of Meeting.

4.4 Convertible Loan Facility

Key terms of the Convertible Loan Facility to be granted to KLPL with MZI as guarantor are summarised

below:

Quantum – a commitment of US$21 million;

Interest rate – interest rate is fixed at 10% per annum, payable quarterly in arrears and on the

maturity date of the Convertible Loan Facility. The Company may elect to pay interest by way of the

issue of MZI shares, with shares being issued at an issue price equal to the 5 day VWAP of shares prior

to the relevant interest payment date. If all of the interest that accrues over the life of the facility

was paid in MZI shares, this would represent approximately 805,365,696 shares (assuming a USD:AUD

exchange rate of US$0.9026 and a 5 day volume weighted average price of $0.013 per share calculated

as at 30 April 2014) (subject to change due to fluctuations in the USD:AUD exchange rate and MZI’s

share price on the relevant interest payment date);

Term – 54 months (4.5 years) from the date of drawdown; KLPL may not pre-pay this facility;

Conversion price – a price per share, denominated in Australian dollars equal to the higher of:

a) 120% of the lower of:

(i) A$0.01373;

(ii) the 30 trading day volume weighted average price as at the acceptance date of the terms of

the Keysbrook Funding Package; and

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(iii) the 30-trading day volume weighted average price as at the date of drawdown of the

Convertible Loan Facility; and

b) A$0.01 (or where the Company has issued or agreed to issue shares at a lower subscription price

(other than under an employee incentive scheme), that lower price).

Drawdown – drawdown is expected to occur at the same time as completion of the Royalty Purchase;

Use of funds – to provide funding for the development costs associated with the Project (including the

establishment of a cost overrun account to the extent required under the Project Debt Facilities);

Acceptance fee – issue of 44,000,000 options to acquire an MZI share, that have a three-year term

from the date of issue, with an exercise price of 120% of the lower of A$0.01373 and the volume

weighted average price for 30 trading days prior to the acceptance of terms of the Keysbrook Funding

Package. We have calculated the 30 day volume weighted average price to be $0.01695, therefore the

applicable exercise price will be $0.01648 being 120% of A$0.01373;

Establishment fee – 3% of the loan amount, issued in MZI shares at an issue price of the lower of

A$0.01373 and the volume weighted average price for 30 trading days prior to the acceptance of

terms of the Keysbrook Funding Package. We have calculated the 30 day volume weighted average

price to be $0.01695, therefore the applicable exercise price is A$0.01373. Therefore, settlement of

the establishment fee in shares would result in the issue of approximately 48,834,529 shares (assuming

a USD:AUD exchange rate of US$0.9396);

Break fee – 3% of the loan amount if MZI does not proceed to draw down on the Convertible Loan

Facility when it is available for drawdown; and

Security – a general security deed in respect of all present and after acquired property of MZI and its

subsidiaries (excluding NT Exploration Pty Ltd), together with such other asset specific security,

including share mortgages, tenement mortgages or property mortgages as customary to debt facilities;

subordination of the Convertible Loan Facility is expected to commence upon first drawdown of the

debt facilities provided under the Project Debt Facilities.

Conditions precedent to the Convertible Loan Facility include, but are not limited to:

the payment of the acceptance fee, the establishment fee and any other fees and expenses due and

payable at that time under the terms of the Funding Package term sheet;

evidence that committed funding is available to fully fund the Project development costs by way of (i)

the Project Debt Facilities; (ii) the Funding Package; and (iii) other equity to be contributed by MZI to

KLPL; and

evidence that all conditions precedent to initial drawdown under the Project Debt Facilities have been

satisfied other than those conditions that can only be satisfied by funding the cost overrun account

and the funding of the equity component of the Project development costs from the Royalty Purchase,

the Convertible Loan Facility and Tranche B of the Bridge Finance Facility.

Other terms and conditions of the Convertible Loan Facility are set out in the Notice of Meeting.

4.5 Bridge Finance Facility

Key terms of the Bridge Finance Facility are summarised below:

Facility – US$18 million comprising two tranches:

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a) Tranche A with a facility limit of US$5 million to be granted to KLPL is to be used to provide

funding for the debt service reserve required to be established under the arrangements for

Project Debt Facilities; and

b) Tranche B with a facility limit of US$13 million to be granted to MZI is to be used for funding

MZI’s corporate purposes as agreed with RCF and to provide funding support for Keysbrook

Project development costs.

Interest rate – interest rate is fixed at 10% per annum and MZI or KLPL can elect to pay this interest

using MZI shares. If paid in shares, this would represent approximately 820,004,804 shares (assuming a

USD:AUD exchange rate of US$0.9287 and an assumed price per share of $0.013 (subject to change

due to fluctuations in the USD:AUD exchange rate and MZI’s share price);

Term – both tranches have a maturity date of 12 months from the date of the first draw down but MZI

can pre-pay the whole or any part of this facility without penalty;

Repayment – in the event that the tranches are not repaid by the maturity date, they will

automatically convert to a convertible loan facility, the terms of which will be materially the same as

those of the Convertible Loan Facility, other than the conversion price mechanism will be 110% of the

relevant price (as opposed to 120% as outlined above); in addition, proceeds from any equity raising or

from any rights issue must be used, subject to the requirements of the Project Debt Facilities, to

repay the Bridge Finance Facility;

Acceptance fee – issue of 35,500,000 options to acquire a share, that have a three-year term from the

date of issue, with an exercise price of 120% of the lower of A$0.01373 and the volume weighted

average price for 30 trading days prior to the acceptance of terms of the Keysbrook Funding Package.

We have calculated the 30 day volume weighted average price to be $0.01695, therefore the

applicable exercise price will be $0.01648 being 120% of A$0.01373;

Establishment fee – 3% of each tranche amount, issued in MZI shares at an issue price of the lower of

A$0.01373 and the volume weighted average price for 30 trading days prior to the acceptance of

terms of the Keysbrook Funding Package. We have calculated the 30 day volume weighted average

price to be $0.01695, therefore the applicable exercise price is A$0.01373. Therefore, settlement of

the establishment fee in shares would result in the issue of approximately 41,858,168 shares (assuming

a USD:AUD exchange rate of US$0.9396);

Commitment fee – 10% per annum on any unutilised portion of the Bridge Finance Facility amount. The

Company expects to draw down on the entire amount available under the Bridge Finance Facility, and

so anticipates that no commitment fees will be payable to RCF;

Break fee – 3% of the loan amount if MZI does not proceed to draw down on the Bridge Finance Facility

when it is available for drawdown;

Guarantors – MZI will be the guarantor for Tranche A of the facility that is provided to KLPL; KLPL will

be the guarantor for Tranche B of the facility that is provided to MZI; and

Security – a general security deed in respect of all property of MZI and its subsidiaries (excluding NT

Exploration Pty Ltd), together with such other asset specific security, including, share mortgages,

tenement mortgages or property mortgages as customary to debt facilities; subordination of the

Bridge Finance Facility will only commence upon first drawdown of the debt facilities provided under

the Project Debt Facilities.

Conditions precedent to the Bridge Finance Facility include, but are not limited to:

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drawdown has occurred under the Convertible Loan Facility;

all fees and expenses set out in the term sheet to the Funding Package then due and payable have

been paid or satisfied;

all conditions precedent to initial drawdown under the debt facilities under the Project Debt Facilities

have been satisfied; and

evidence that the debt service reserve account is required to be funded in accordance with the terms

of the Project Debt Facilities.

Other terms and conditions of the Bridge Finance Facility are set out in the Notice of Meeting.

4.6 Shareholding in MZI following the provision of the Funding Package

The following table shows the maximum number of shares that may be issued to RCF following the

approval of the Funding Transaction (Resolution 1) together with Resolutions 2 and 3. If Resolution 1 is

approved, but Resolutions 2 and 3 are not approved, RCF may reach a shareholding of 73.6% relative to

other Shareholders in MZI. If Resolution 1, 2 and 3 are approved, RCF may reach a maximum shareholding

of 73.9% relative to other Shareholders in MZI (‘Maximum Scenario’).

Other

RCF Shareholders Total

Existing shareholding:

Issued shares as at the date of our Report 368,897,790 2,311,028,047 2,679,925,837

% holdings as at the date of our Report 13.8% 86.2% 100.00%

Following the provision of the Funding Package

Issued shares as at the date of our Report 368,897,790 2,311,028,047 2,679,925,837

Approval under Resolution 1

Convertible Loan

Maximum number of shares to be issued under the Conversion 2,326,612,0101 - 2,326,612,010

Number of shares to be issued under the Acceptance Fee (on

exercise of options) 44,000,000 - 44,000,000

Number of shares to be issued under the Establishment Fee 48,834,5292 - 48,834,529

Number of shares to be issued to meet interest payments 805,365,6963 - 805,365,696

3,224,812,235 - 3,224,812,235


Maximum number of shares to be issued under the Bridge

Finance 1,938,193,1734 - 1,938,193,173

Number of shares to be issued under the Acceptance Fee (on

exercise of options) 35,500,000 - 35,500,000

Number of shares to be issued under the Establishment Fee 41,858,1685 - 41,858,168

Number of shares to be issued to meet interest payments 820,004,8046 - 820,004,804

2,835,556,145 - 2,835,556,145

Total shares to be issued under Resolution 1 6,060,368,380 - 6,060,368,380

Number of shares after the provision of the Funding Package 6,429,266,170 2,311,028,047 8,740,294,217

% holdings if Resolution 1 is approved 73.6% 26.4% 100.0%

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Other

RCF Shareholders Total

Approval under Resolution 2 and 3

Additional Amount

Maximum number of shares to be issued pursuant to the

Additional Amount 97,166,6217 - 97,166,621

Number of shares to be issued under the Extension Fee 9,489,2098 - 9,489,209

Total shares to be issued under Resolution 2 and 3 106,655,831 - 106,655,831

Maximum number of shares to be issued under the Funding

Package 6,167,024,210 - 6,167,024,210

Maximum number of shares post funding under the Funding

Package 6,535,922,000 2,311,028,047 8,846,950,047

% holdings under the Maximum Scenario 73.9% 26.1% 100.0%

Source: RCF term sheet for the Funding Package and BDO analysis

1 The number of shares issued to RCF upon the conversion under a fully drawn Convertible Loan Facility (A$23,266,120) at an

exercise price of $0.01 (the lowest possible price that will maximise the number of shares issued to RCF).

2 The number of shares issued to RCF in satisfaction of the establishment fee in connection with the Convertible Loan Facility, which

is calculated as 3% of the total amount drawn (US$21 million converted into AUD at an exchange rate of US$0.9396 as specified in the

terms of the agreement), converted into shares at a conversion price of $0.01373.

3 The number of shares issued to RCF in satisfaction of interest payable under the Convertible Loan Facility (total interest has been

calculated to be approximately A$10,469,754 over a 4.5-year term), converted into shares at a conversion price of $0.013, based on

the 5-day volume weighted average price as at 30 April 2014.

4 The number of shares issued to RCF upon the conversion under a convertible loan facility into which the Bridge Finance Facility may

convert into, at a conversion price of A$0.01 (the lowest possible price that will maximise the number of shares issued to RCF) and

assuming that the Bridge Finance Facility is fully drawn down (A$19,381,932).

5 The number of shares issued to RCF in satisfaction of the establishment fee in connection with the Bridge Finance Facility, which is

calculated as 3% of the total amount drawn (US$18 million), converted into shares at a conversion price of $0.01373.

6 The number of shares issued to RCF in satisfaction of interest payable under the Bridge Finance Facility (total interest has been

calculated to be approximately A$10,660,062 over a 5.5-year term), converted into shares at a conversion price of $0.013, based on

the 5-day volume weighted average price as at 30 April 2014. As the Bridge Finance Facility is assumed to be fully drawn throughout

the term, no commitment fee is assumed to be payable. In any case, as the commitment fee is calculated at the same rate as the

interest rate on the Bridge Finance Facility, there will not be any difference in the amount payable.

7 The maximum number of shares to be issued to RCF in satisfaction of the repayment of the fully drawn Additional Amount

(A$1,068,833) at a conversion price of $0.011.

8 The maximum number of shares to be issued to RCF in satisfaction for the Extension Fee (A$113,871) at a conversion price of

$0.0120.

The RCF Interim Facility is expected to be repaid by funds received on the Royalty Purchase. We note that

all options are out-of-the-money with exercise prices ranging from $0.016 to $0.075 (see section 5.6).

Therefore, no options are assumed to be exercised and we have not considered the fully diluted effect

that the options have on the Company.

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Shareholders’ interests in MZI may be diluted from 86.2% to 26.1% assuming the maximum number of

shares to be issued under the Funding Package provided by RCF, including the exercise of all options

issued to RCF. RCF’s corresponding shareholding interest may increase from 13.8% to 73.9%.

We have also considered the scenario where, in order to avoid the maximum dilution of Shareholders’

interests, MZI may not elect to settle its obligations through the issue of shares. The Company has this

discretion under the following components of the Funding Package:

option to issue shares to meet interest payments or pay cash under the Convertible Loan;

option to issue shares to meet interest payments or pay cash under the Bridge Finance Facility; and

option to pay cash to repay the principal outstanding under the Bridge Finance Facility before it is

converted into a convertible loan facility at the end of the 12-month period.

The following table shows the minimum number of shares under the scenario where MZI elects not to

settle any of its obligations through the issue of shares, resulting in RCF holding a minimum shareholding

of 41.7% relative to other Shareholders in MZI (‘Minimum Scenario’).

Shares Number

Number of existing shares 2,679,925,837

New shares to be issued under the Funding Package:

Convertible Loan

Minimum number of shares to be issued under the Conversion 1,111,713,5541

Number of shares to be issued under the Acceptance Fee (on exercise of options) 44,000,000

Number of shares to be issued under the Establishment Fee 48,834,5292

Number of shares to be issued to meet interest payments -3

1,204,548,083


Minimum number of shares to be issued pursuant to the Bridge Finance -4

Number of shares to be issued under the Acceptance Fee (on exercise of options) 35,500,000

Number of shares to be issued under the Establishment Fee 41,858,1685

Number of shares to be issued to meet interest payments -3

77,358,168

Additional Amount

Minimum number of shares to be issued pursuant to the Additional Amount -6

Number of shares to be issued under the Extension Fee -6

-

Minimum new shares to be issued under the Funding Package 1,281,906,251

Adjusted total number of shares following the issue of new shares 3,961,832,088

Shareholding of RCF (including existing shareholding) if minimum new shares are issued 1,650,804,041

% holding of RCF following the provision of the Funding Package 41.7%

Source: RCF term sheet for the Funding Package and BDO analysis

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1 The number of shares issued to RCF upon the conversion under a fully drawn Convertible Loan Facility (A$22,612,254) at an

exercise price of $0.01648 (the highest known price that will minimise the number of shares issued to RCF).

2 The number of shares issued to RCF in satisfaction of the establishment fee in connection with the Convertible Loan Facility, which

is calculated as 3% of the total amount drawn (US$21 million), converted into shares at a conversion price of $0.01373.

3 Assumes that MZI elects to meet all interest payments with cash.

4 Assumes that MZI elects to make cash repayment of the principal under the Bridge Finance Facility before it is converted into a

convertible loan facility within the 12-month period.

5 The number of shares issued to RCF in satisfaction of the establishment fee in connection with the Bridge Finance Facility, which is

calculated as 3% of the total amount drawn (US$18 million), converted into shares at a conversion price of $0.01373.

6 Assumes that MZI makes cash repayment of the principal, capitalised interest and Extension Fee in connection with the Additional

Amount.

We note that the options to be issued to RCF in satisfaction of the acceptance fees in connection with the

Convertible Loan Facility and the Bridge Finance Facility are out-of-the-money. Therefore, RCF’s minimum

shareholding may be as low as 40.4% in the event that these options are not exercised.

4.7 Change in RCF’s voting power over time

While our analysis in section 4.6 shows the maximum and minimum shareholdings that RCF may acquire

under the Funding Package, the maximum or minimum shareholding interest of RCF is not reached

immediately but occurs over time.

Based on the assumption that all the individual facilities under the Funding Package are fully drawn and

held for the full term up to their respective repayment dates before any possible conversion or issue of

shares occur, RCF’s change in voting power over time is represented in the following graph:


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

Year

RCF Shareholding

Maximum percentage shareholding of RCF Minimum percentage shareholding of RCF

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5. Profile of MZI

5.1 History

MZI, formerly Matilda Zircon Limited and prior to that, Olympia Resources Limited, was admitted to the

ASX in 2004. It is a mineral sands company focused on the exploration for, and production of, high value

mineral sands products including zircon, rutile and leucoxene.

MZI’s primary project is its advanced stage Keysbrook Project, located south of Perth, Western Australia.

Keysbrook is expected to start producing in 2015 subject to finalising the Project Debt Facilities and

drawing down on the Funding Package. It also operated two projects on the Tiwi Islands, 50km north of

Darwin in the Northern Territory, the second project of which finished producing in January 2013.

MZI’s Board of Directors and senior management currently consists of:

Mr M Randall (Non-Executive Chairman);

Mr T Matthews (Chief Executive Officer);

Mr K Vuleta (Finance Director & joint Company Secretary);

Mr P Gazzard (Technical Director);

Mr N Wong (Non-executive Director);

Mr J Traicos (joint Company Secretary); and

Mr J Wright (Chief Development Officer).

5.2 Projects

Keysbrook

MZI is developing a major leucoxene deposit at Keysbrook, located approximately 70 kilometres from

Perth near Pinjarra, Western Australia. Once in production, Keysbrook will be one of the largest producing

leucoxene mines in the world.

The land is predominantly pastoral, used for dairy and beef cattle farming, with some pockets of degraded

remnant native vegetation. The project sits within two Shires, being the Shire of Murray and the Shire of

Serpentine Jarrahdale. Land titles in the Keysbrook area were granted prior to 1899 and consequently are

freehold ‘minerals to owner’, meaning that the minerals (other than precious minerals) are owned by the

private landowner and not the State.

The deposit is dunal, with no overburden and low clay and rock content. The mining depth will vary

between 2m and 5m depending on dunal variations. The deposit is approximately 1,406 hectares in area.

It has an unusual heavy mineral suite, compared to other titanium and zircon operations in the south west

of Western Australia, with leucoxene as its major constituent.

Environmental approvals for Keysbrook were granted in October 2009 and development approvals and

licences were granted by the respective shires in March 2012 for an eight year period expiring March 2020.

Further approvals will be sought to extend the mine to more than 15 years.

Heavy mineral concentrate (‘HMC’) product from Keysbrook will be transported via the Forrest Highway to

Doral Mineral Sands Pty Ltd’s (‘Doral’) mineral separation plant (‘MSP’), located in Picton, approximately

130km south from Keysbrook, for dry separation. MZI has entered into an agreement with Doral to allow

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treatment of the HMC. A plant upgrade is planned at Doral’s MSP to enable it to treat the high leucoxene

Keysbrook HMC. Leucoxene and zircon products will be exported through the Bunbury Port.

Following a tender process in 2013, MZI announced that GR Engineering Services Limited is the preferred

engineering, procurement and construction (‘EPC’) contractor for Keysbrook.

Currently the Keysbrook Project has a total of 25.8 million tonnes of proven and probable reserves and

78.9 million tonnes of measured, indicated and inferred resources as shown in the table below:

Tonnes (Mt) Total Heavy Mineral %

Reserves

Proven 23.0 2.7

Probable 2.8 2.5

Total 25.8 2.7

Resources

Measured 34.1 2.6

Indicated 33.2 2.2

Inferred 11.6 2.6

Total 78.9 2.4

Source: SRK report (Appendix 4)

Tiwi Islands

The Tiwi Islands, consisting of Melville and Bathurst Islands, are located approximately 50kms north of

Darwin. Mineral sand from the Tiwi deposits is high in zircon and rutile. Typically, the concentrate

produced has a zircon content of 40% – 50% and rutile at 40%.

MZI and the previous tenements owner, Matilda Minerals Ltd, have been operating on the Tiwi Islands

since 2006, commencing with the Andranangoo mine. MZI’s first operation on the Tiwi Islands was in 2009

at Lethbridge West, located on Melville Island. It was a small deposit producing 11,500 tonnes of

concentrate from 134,500 tonnes of mined ore over a four month period. Mining of Lethbridge West

ceased in 2010 and is in the process of being rehabilitated back to its pre-mined condition.

In 2012, MZI commenced mining the Lethbridge South deposit on Melville Island, located 4kms south east

of Lethbridge West. The ore body was four times the size of Lethbridge West with a grade of 2.5% heavy

mineral. The final shipment from Lethbridge South was made on 16 January 2013. The site underwent

final clean-up activities before being placed into a care and maintenance program. Rehabilitation and

environmental monitoring remain an ongoing priority for MZI post mining.

MZI is currently progressing development approvals and planning for further exploration activities and

early studies on its Kilimiraka mineral sands project on the Tiwi Islands.

See Appendix 4 for further detail on MZI’s projects.

5.3 Recent fund raising activities

On 22 July 2013, MZI announced that the share purchase plan announced on 1 July 2013 had closed and

raised $2.04 million with the remaining shortfall of $0.96 million underwritten by Argonaut Capital.

Together with the completed $3 million share placement to RCF announced on 30 June 2013 (where RCF

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acquired its initial holding in MZI), the Company had raised $6 million as an initial step of capital raisings

for its Keysbrook Project.

On 4 November 2013, MZI announced that it had successfully raised $5 million, to allow it to continue

work on its Keysbrook Project, via a share placement of $4.04 million through Argonaut Capital (including

the $500,000 placement previously announced on 18 September 2013 and share purchase plan shortfall

funding of $0.96 million). RCF subscribed to $1.79 million of the placement to increase its shareholding in

MZI from 11.1% to 14.9% at that point in time. The funding allowed MZI to complete its debt funding

process and commence early stage engineering and design work for the Keysbrook Project, among other

activities.

On 19 December 2013, the Company announced that RCF had agreed to provide MZI with a US$3.5 million

short-term loan facility which is due to be repaid by 31 March 2014. RCF subsequently agreed to increase

the size of that short term loan facility to US$4.5 million and extend the repayment date to 30 June 2014.

The RCF Interim Facility ensured that the Company has sufficient funds to continue the early-stage

engineering, design work and other activities at its Keysbrook Project while senior debt facilities were

being arranged. The RCF Interim Facility highlights RCF’s strong support for the Keysbrook Project.

At the Company’s annual general meeting in 2013, Shareholders of MZI approved an Employee Share Trust

plan aimed at incentivising and driving long term performance of its employees for the benefit of its

shareholders. Under this plan, MZI issued 125,383,999 shares to the Employee Share Trust on 2 May 2014.

5.4 Historical Balance Sheet

Statement of Financial Position

Reviewed as at Audited as at Audited as at

31-Dec-13 30-Jun-13 30-Jun-12

$'000 $'000 $'000

CURRENT ASSETS

Cash and cash equivalents 5,180 130 5,919

Trade and other receivables 1,000 3,009 408

Inventories - 178 2,172

Other current assets 42 127 252

Assets classified as held for sale - 682 -

TOTAL CURRENT ASSETS 6,222 4,126 8,751

NON-CURRENT ASSETS

Trade and other receivables 690 690 613

Property, plant and equipment 4,004 3,999 5,438

Exploration and evaluation expenditure 1,553 1,588 1,409

Mine development expenditure 19,788 16,139 12,881

TOTAL NON-CURRENT ASSETS 26,035 22,416 20,341

TOTAL ASSETS 32,257 26,542 29,092

CURRENT LIABILITIES

Trade and other payables 3,891 5,743 4,462

Provisions 290 316 127

Other financial liability 900 - -

Loans and borrowings 4,650 802 7,371

TOTAL CURRENT LIABILITIES 9,731 6,861 11,960

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Statement of Financial Position

Reviewed as at Audited as at Audited as at

31-Dec-13 30-Jun-13 30-Jun-12

$'000 $'000 $'000

NON-CURRENT LIBILITIES

Trade and other payables 439 423 -

Provisions 120 64 -

Other financial liability 880 - -

Borrowings 1,072 1,069 -

TOTAL NON-CURRENT LIABILITIES 2,511 1,556 -

TOTAL LIABILITIES 12,242 8,417 11,960

NET ASSETS 20,015 18,125 17,132

EQUITY

Share capital 61,053 54,413 51,306

Reserves 1,725 1,377 1,044

Accumulated losses (42,763) (37,665) (35,218)

TOTAL EQUITY 20,015 18,125 17,132

Source: MZI’s 31 December 2013 half year report, 2013 annual report and 2012 annual report

We note that the auditor of MZI as at 31 December 2013 included an emphasis of matter in relation to the

going concern of the Company. As at 31 December 2013, the Company had insufficient cash on hand to

meet the trade and other payable and current loan commitments.

We note the following in relation to MZI’s balance sheet:

MZI’s cash balance increased from $0.13 million at 30 June 2013 to $5.18 million at 31 December 2013

following the raising of $10.04 million from equity raisings. $4.79 million was raised through two

placements to RCF in July 2013 and November 2013; $2.044 million was raised through a share

purchase plan and the remaining $3.21 million was raised through the issue of shares to clients of

Argonaut Capital in October 2013.

As at 30 June 2013, the funds to be received from RCF in relation to the July 2013 capital raising were

classified as a receivable. Following the receipt of these funds in July 2013, the balance was

transferred to cash. This resulted in a decrease to the trade and other payables balance as at 31

December 2013.

The inventory balance decreased to nil following the closure of the Company’s Lethbridge South mine.

Certain items of plant and equipment from the Lethbridge South operation were classified as assets

held for sale at 30 June 2013. These assets were sold during the half year ended 31 December 2013 for

a $0.51 million profit.

As at 31 December 2013, $0.596 million in security deposits had been lodged with the Department of

Mines and Energy, Northern Territory. Deposits of $94,000 are being held as security for the

Company’s leased premises. These deposits are classified as non-current trade and other receivables.

All of the exploration and evaluation expenditure as well as mine development expenditure balances

as at 31 December 2013 relate to the development of the Keysbrook Project. Approximately $3.2

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million of property, plant and equipment as at 31 December 2013 relate to land relating to the

Keysbrook Project.

Provisions relate to annual leave and long service leave provisions.

The $4.65 million of loans and borrowings at 31 December 2013 primarily relates to the US$3.5 million

RCF Interim Facility. Interest on this loan is payable at 10% per annum and the loan is secured over the

Company’s assets.

Non-current loans primarily relate to a $1 million loan from one of the Company’s major shareholders.

This loan is repayable no later than 30 June 2015 and attracts interest of 10% per annum.

During the half year ended 31 December 2013, 774,040,006 shares were issued in relation to the

previously mentioned capital raisings. No options were exercised over this period but 366,614,732

listed options expired on 31 December 2013.

During FY13, the Company settled its legal dispute with Stirling Resources regarding tenements on the

Tiwi Islands and Northern Territory mainland.

5.5 Historical Statement of Comprehensive Income

Statement of Comprehensive Income

Reviewed for the Audited for the Audited for the

half year ended

31-Dec-13

year ended

30-Jun-13

year ended

30-Jun-12

$'000 $'000 $'000

Continuing operations

Revenue from sales - 28,787 9,423

Costs of production - (16,242) (6,490)

Gross Profit before Depreciation, Amortisation and

Other Operating Costs - 12,545 2,933

Depreciation and amortisation (100) (5,203) (3,170)

Other operating costs (593) (2,150) (842)

Gross Profit/(loss) (693) 5,192 (1,079)

Other revenue 525 86 3,847

Other income - - 1

Corporate expenses (4,114) (7,229) (2,822)

Other expenses (448) (373) (21)

Loss before Interest and Tax (4,730) (2,324) (74)

Finance expenses (368) (123) (181)

Loss before Tax (5,098) (2,447) (255)

Tax expense - - -

Loss after tax from Continuing Operations (5,098) (2,447) (255)

Discontinued Operations

Loss after tax from discontinued operations - - (424)

Loss for the year (5,098) (2,447) (679)

Other comprehensive income

Exchange differences on translation of foreign operation - - 266

Total Comprehensive Loss for the Year (5,098) (2,447) (413)

Source: MZI’s 31 December 2013 half year report, 2013 annual report and 2012 annual report

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We note the following in relation to MZI’s income statement:

During FY13, the Company completed production at its Lethbridge South zircon/rutile mine. Revenue

was generated from 26,479 wet tonnes of zircon/rutile concentrate shipped from Lethbridge South.

The Company did not have any producing mines in the half year ended 31 December 2013 and

therefore did not generate any revenue from sales.

The increase in corporate expenses from FY12 to FY13 was driven by a significant increase in

consulting fees and share based payments for Keysbrook Project funding, engineering and

development activities. During FY13, the Company granted 4.5 million options to consultants in

consideration for services in relation to a capital raising, and 20 million options were issued to

Executive and Non-Executive Directors. The increase in corporate expenses, on an annualised basis, to

31 December 2013 is due to increased activity as the Company continues the development of the

Keysbrook Project.

5.6 Capital Structure

The share structure of MZI as at 5 May 2014 is outlined below:

Number

Total ordinary shares on issue 2,679,925,837

Top 20 shareholders 1,681,772,790

Top 20 shareholders - % of shares on issue 62.75%

Source: Computershare and ASX announcements

The range of shares held in MZI as at 5 May 2014 is as follows:

Number of Ordinary

Shareholders

Number of Ordinary

Shares

Percentage of Issued

Shares (%) Range of Shares Held

1 - 1,000 71 11,667 0.00%

1,001 - 5,000 34 125,540 0.00%

5,001 - 10,000 75 662,207 0.03%

10,001 - 100,000 773 40,930,411 1.53%

100,001 - and over 1,143 2,638,196,012 98.44%

TOTAL 2,096 2,679,925,837 100.00%

Source: Computershare

The ordinary shares held by the most significant shareholders as at 5 May 2014 are as follows:

Name Number of Ordinary Shares Held Percentage of Issued Shares (%)

Stirling Zircon 581,839,934 21.7%

RCF 368,897,790 13.8%

Xiang Lin, Mrs Hongfeng Zhao 159,890,911 6.0%

Tricoastal Minerals 114,824,075 4.3%

Slade Technologies 91,061,359 3.4%

Subtotal 1,316,514,069 49.1%

Others 1,363,411,768 50.9%

Total ordinary shares on Issue 2,679,925,837 100.0%


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MZI’s unlisted options on issue as at 5 May 2014 are outlined below:

Current Options on Issue

Number of options Exercise price Expiry date Type

Unlisted options 20,000,000 $0.040 31 December 2015

Unlisted options 5,000,000 $0.040 30 June 2015

Unlisted options 5,000,000 $0.075 30 June 2016

Unlisted options 4,500,000 $0.020 3 July 2016

Unlisted options 50,000,000 $0.016 5 December 2016

TOTAL 84,500,000


We note that all options are currently out-of-the-money with exercise prices ranging from $0.016 to

$0.075. Therefore, no options are assumed to be exercised and we have not considered the fully diluted

effect that the options have on the Company.

6. Profile of Resource Capital Fund VI L.P.

Resource Capital Fund VI L.P. is the sixth fund of RCF Management L.L.C. (‘RCFM’), which is a private

equity firm that invests exclusively in the mining sector across a diversified range of hard mineral

commodities and geographic regions. The funds are managed by RCFM which has its principal office in

Denver and additional offices in Perth, New York (Long Island) and Toronto.

RCFM pioneered the concept of mining-focused private equity funds and strives to produce superior

returns to its investors, portfolio companies and fellow equity investors. Resource Capital Funds was

founded in 1998 and has, since inception, supported 120 mining companies (and several mining-services

companies) involving projects located in 40 countries and relating to 28 commodities.

RCFM has experience in building management teams specifically suited to develop and or operate assets

and has the resources and networks to draw upon to source top talent from around the world. In addition

to providing financing, Resource Capital Funds has the in-house technical and financial expertise to

actively guide a mining company’s management team through the process of raising capital in the public

equity and project financing markets. RCFM’s management team consists of individuals with extensive

commercial and technical experience in the mining industry.

RCFM is currently investing its sixth fund, RCF, with committed capital of $2.04 billion and currently

manages three other active private equity funds, Resource Capital Fund V L.P., Resource Capital Fund IV

L.P. and Resource Capital Fund III L.P. RCFM’s committed capital is sourced primarily from US-based

institutional investors.

Information about Resource Capital Funds can be found on its website www.resourcecapitalfunds.com.

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7. Economic analysis

Growth in the global economy was below trend in 2013, but there are reasonable prospects of a better

outcome this year, helped by firmer conditions in the advanced countries. China's growth appears to have

slowed a little in early 2014 but remains generally in line with policymakers' objectives. Commodity prices

in historical terms remain high, though some of those important to Australia have softened further of late.

Financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads

remain low. Equity and credit markets are well placed to provide adequate funding.

In Australia, the economy grew at a below-trend pace in 2013. Recent information suggests moderate

growth is occurring in consumer demand and foreshadows a strong expansion in housing construction.

Some indicators of business conditions and confidence have improved from a year ago and exports are

rising. But at the same time, resources sector investment spending is set to decline significantly and, at

this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait

for more evidence of improved conditions before committing to expansion plans. Public spending is

scheduled to be subdued.

The demand for labour has been weak over the past year and, as a result, the rate of unemployment has

risen somewhat. More recently, there has been some improvement in indicators for the labour market, but

it will probably be some time yet before unemployment declines consistently. Growth in wages has

declined noticeably and this has been reflected more clearly in the latest price data, which show a

moderation in growth in prices for non-traded goods and services. As a result, inflation is consistent with

the target. If domestic costs remain contained, that should continue to be the case over the next one to

two years, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher

returns in response to low rates on safe instruments. Credit growth has picked up a little, while dwelling

prices have increased significantly over the past year. The decline in the exchange rate from its highs a

year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of

the rise over the past few months. The exchange rate remains high by historical standards.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help

growth to strengthen over time. Inflation is expected to be consistent with the 2–3% target over the next

two years.

Source: www.rba.gov.au Statement by Glenn Stevens, Governor: Monetary Policy Decision 6 May 2014

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8. Industry analysis

8.1 Mineral Sands

Mineral sands is a class of ore which is an important source of zirconium, titanium, thorium, tungsten, rare

earth elements and other industrial minerals used in many products.

The mineral sands industry consists of two core product streams: titanium minerals and zircon. Titanium

minerals (ilmenite, leucoxene and rutile) are far more prevalent in mineral sand ore bodies than zircon.

The indicative TiO2 content of the main titanium products available or manufactured are as follows:

Rutile 92% - 96%

Upgraded slag 91%- 95%

Synthetic rutile 85% – 95%

Leucoxene 65% – 91%

Titanium slag 75% – 85%

Ilmenite 35% – 65%

Synthetic rutile, titanium slag and upgraded slag are beneficiated products derived from ilmenite.

Titanium dioxide minerals are used mainly as feedstock for the world’s titanium dioxide pigment industry.

Pigment is commonly used in architectural and automotive paints, plastics, paper, textiles and inks and in

the manufacture of welding electrodes. Rutile, synthetic rutile and titanium slag are also used to produce

titanium metal. Zircon is used in the ceramics industry in the production of opacifiers used in surface

glazes and pigments. Zircon is also used in the production of zirconia, zirconium metal and zirconium

chemicals.

8.2 Current market conditions

After a recovery in demand for zircon in the first half of 2013, especially China, the remainder of the year

saw more subdued market conditions reflecting continuing fragility in business confidence. Demand in the

United States, which mainly related to manufacturing, remained robust.

The long term growth for both titanium and zircon is forecast to be weaker than expected as customers

continue to use mineral sands more efficiently.

8.3 Prices

Zircon, rutile and ilmenite prices, while different in terms of value, tend to following similar trends. The

graphs below show the historical spot prices for zircon, ilmenite and rutile for the past five and the

forecast prices for the next few years.

Zircon

After historic highs during 2011 and 2012 of just over US$2,500 per tonne, zircon prices have since fallen

to approximately US$1,150 per tonne in the March 2014 quarter. Prices are expected to increase to

US$1,668 in the next five years.

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Source: Bloomberg and Consensus Forecasts

Rutile

Rutile followed a similar trend to zircon, peaking at US$2,225 per tonne in mid-2012 before correcting at

the start of 2013 to US$1,250 per tonne. The price decreased further to approximately US$1,005 per tonne

in April 2014. Prices are expected to increase to approximately US$1,440 per tonne before decreasing to

approximately US$1,320 per tonne in the next five years.


Ilmenite

Ilmenite following a slightly different trend to that of zircon and rutile, peaked at US$300 per tonne in

mid-2012 before correcting to US$205 per tonne in March 2014. Prices are expected to remain relatively

stable at approximately US$210 per tonne in the next five years.

-

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$ p

er

tonne

Zirconium Ore

Spot Forecast

-

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$ p

er

tonne

Rutile

Spot Forecast

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Leucoxene

Although Leucoxene is not a recognised mineral species, the name has been applied to products with a

titanium content ranging from approximately 65% to 91%.

MZI’s Leucoxene 70 product is sold based on its fixed price off-take contract with DuPont.

MZI’s Leucoxene 88 product is priced relative to the chloride slag price. Historically, chloride slag has sold

at approximately 20% less than the price of rutile. KLPL is currently in advanced negotiations to execute

an off-take agreement for a substantial proportion of its Leucoxene 88 product.

8.4 Mineral Sands in Western Australia

The main mineral sands producers within Western Australia are Iluka Resources, based in the Mid-West and

South West, Bemax (Cristal) and Doral Mineral Sands, primarily based in the South-West and Tronox, based

in the Mid-West.

Iluka’s heavy mineral sands operations in WA are located in two regions, the mid-west region about 300 –

400 kilometres north of Perth and in the State’s southwest region, south of Perth. Recently, Iluka has

idled its Tutunup South and Eneabba mines and all four of its synthetic rutile plants due to declining prices

for high grade titanium oxide and high operating costs of synthetic rutile plants.

-

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US$ p

er

tonne

Ilmenite

Spot Forecast

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9. Fairness approach adopted

RG 111 states that an offer transaction is ‘fair’ if the value of the offer price or consideration is greater

than the value of the securities subject of the offer.

RG 111 suggests that a proposed related party transaction is ‘fair’ if the value of the financial benefit to

be provided by the entity to the related party is equal to or less than the value of the consideration being

provided to the entity.

9.1 Funding Transaction

In determining the fairness of the Funding Transaction, the value of an MZI share, including a premium for

control, prior to the Funding Transaction (‘Pre-Transaction Value’) is compared to the value of an MZI

share, on a minority interest basis, after the Funding Transaction (‘Post-Transaction Value’).

The Funding Transaction is fair if the Post-Transaction Value of an MZI share is greater than the Pre-

Transaction Value of an MZI share.

Although the Royalty Purchase requires approval under ASX Listing Rule 10.1, RG 111 states that an expert

need only conduct one analysis of whether the transaction is ‘fair and reasonable’ even if the report has

been prepared for a reason other than the transaction being a related party transaction. Therefore, we

have included our consideration of the Royalty Purchase as part of our consideration of the Funding

Transaction.

9.2 Security Transaction

We have assessed how the value of the proceeds of the sale of the secured assets that would be provided

to RCF to secure the repayment of monies owed under the Funding Package, in the event of a default,

compares to the value of the liabilities that would be settled.

In the case of the Security Transaction, the value of the financial benefit to be provided by the entity to

the related party relates to the value of the proceeds of the sale of secured assets that would be provided

as settlement of amounts payable to RCF in the event of a default (‘Security Provided’).

The value of the consideration being provided to the entity relates to amounts payable to RCF that would

be settled by the sale of the secured assets, including the principal amount drawn down and related

interest accrued (‘Liabilities Settled’).

The Security Transaction is fair if the value of the Security Provided to RCF is equal to or less than the

value of the Liabilities Settled by this security in the event of default.

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10. Valuation approach adopted

There are a number of methodologies which can be used to value a business or the shares in a company.

The principal methodologies which can be used are as follows:

Capitalisation of future maintainable earnings (‘FME’)

Discounted cash flow (‘DCF’)

Quoted market price basis (‘QMP’)

Net asset value (‘NAV’)

Market based assessment, such as a resource multiple

A summary of each of these methodologies is outlined in Appendix 2.

Different methodologies are appropriate in valuing particular companies, based on the individual

circumstances of that company and available information.

It is possible for a combination of different methodologies to be used together to determine an overall

value where separate assets and liabilities are valued using different methodologies. When such a

combination of methodologies is used, it is referred to as a ‘sum-of-parts’ (‘Sum-of-Parts’) valuation.

The approach using the Sum-of-Parts involves separately valuing each asset and liability of the company.

The value of each asset may be determined using different methods as described above. The component

parts are then valued using the NAV methodology, which involves aggregating the estimated fair market

value of each individual company’s assets and liabilities.

10.1 Valuation of MZI Shares Pre-Transaction

In our assessment of the Pre-Transaction Value of MZI’s shares (prior to the Funding Transaction), we have

considered the following methodologies:

Sum-of-Parts method as our primary approach;

QMP as our secondary approach; and

NAV to provide a base value per share.

Sum-of-Parts

We have employed the Sum-of-Parts method in estimating the fair market value of MZI by aggregating the

estimated fair market values of its underlying assets and liabilities, having consideration to the:

value of MZI’s interest in the Keysbrook Project (applying the DCF method) on the assumption that

MZI has secured the Project Debt Facilities and will have to raise the additional capital (proposed to

be provided by RCF under the Funding Package) through a share placement instead;

value of MZI’s prospective exploration leases in the Northern Territory and Western Australia

(applying the cost approach under the NAV method); and

value of other assets and liabilities of MZI (applying the cost approach under the NAV method).

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We have chosen the Sum-of-Parts method (including a DCF method) as our primary valuation methodology

for the following reasons:

as MZI has one flagship project which is its Keysbrook Project located in Western Australia, its core

value is in the future cash flows to be generated from this mine;

cash flows from the Keysbrook Project have a finite life, may vary substantially from year to year and

can be reasonably estimated, rendering it suitable for the DCF valuation;

the life of mine of the Keysbrook Project has been prepared based on reserves identified by MZI and

does not include any resource potential. Therefore, the DCF method is appropriate in valuing the

Project’s life of mine;

MZI has secured debt funding for its Keysbrook Project, which provides reasonable grounds that, in

the event that the Funding Package is not available, the Company may be able to raise equity funds

to enable the Project to be fully funded in order to apply the DCF valuation approach;

the directors of MZI have assessed that the values of MZI’s exploration leases in the Northern Territory

are not expected to be material at this stage of their development;

MZI does not have tenure of the additional resources outside of the reserves included in the Model

and therefore no value can be attributed to them; and

other component parts such as other assets and liabilities of MZI are valued using the NAV method.

The assumptions that we undertake in the Sum-of-Parts valuation approach to derive MZI’s Pre-

Transaction Value, differ from the Sum-of-Parts valuation approach to derive MZI’s Post-Transaction

Value, in that, the Pre-Transaction Value takes into account the additional capital that MZI will have to

raise without the provision of the Funding Package. On the basis that MZI has secured debt funding for its

Keysbrook Project through the Project Debt Facilities, to finance the Project in the absence of the

Funding Package, additional funds need to be raised by further equity in a secondary raising or similar. We

have considered the likely price at which MZI will have to place its shares to a third party or to current

shareholders under a rights issue.

To determine the likely placement price, we considered the volume weighted average trading price of

MZI’s shares and the discount at which shares have been issued by ASX listed companies when compared

with the companies’ share prices the day prior to the announcement of the placements.

Technical expert

In performing our valuation of MZI’s Keysbrook Project using the DCF method, we have relied on the

Technical Assessment Report prepared by SRK Consulting (Australasia) Pty Ltd (‘SRK’) as at 6 May 2014

(‘Technical Assessment Report’) based on SRK’s review of the technical project assumptions contained in

the cash flow models of the Project.

SRK has not independently valued MZI’s exploration leases in the Northern Territory and Western

Australia, or the resource potential of the licence area that has not been included in the life of mine of

the Keysbrook Project as we have been advised by MZI that they do not currently have all the necessary

approvals and are therefore not currently entitled to develop these resources. The directors of MZI have

also assessed that the values of those exploration leases are not expected to be material at this stage of

their development.

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SRK’s Technical Assessment Report is prepared in accordance with the Code of Technical Assessment and

Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (‘the Valmin

Code’) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves

(‘JORC Code’).

Other methodologies adopted

We have chosen other methodologies as our secondary and tertiary approaches for the following reasons:

QMP has been adopted as our secondary method. The QMP basis is a relevant methodology to consider

because MZI’s shares are listed on the ASX. This means there is a regulated and observable market

where MZI’s shares can be traded. However, in order for the QMP methodology to be considered

appropriate, the Company’s shares should be liquid and the market should be fully informed as to

MZI’s activities; and

the net asset approach provides an alternative indication of the value of an MZI share. We have

adopted the book values of MZI’s assets and liabilities in our assessment of the Company’s value.

10.2 Valuation of MZI Shares Post-Transaction

In our assessment of the Post-Transaction value of MZI’s shares (after the provision of the Funding

Package), we have adopted the Sum-of-Parts methodology.

We have employed the Sum-of-Parts method in estimating the fair market value of MZI by aggregating the

estimated fair market values of its underlying assets and liabilities, having consideration to the:

value of MZI’s interest in the Keysbrook Project (applying the DCF method) on the basis that MZI has

secured the Project Debt Facilities and the Funding Package to enable the Project to be fully funded;

value of MZI’s prospective exploration leases in the Northern Territory and Western Australia

(applying the cost approach under the NAV method), which in this case is not expected to be

material; and

value of other assets and liabilities of MZI (applying the cost approach under the NAV method).

In performing our valuation of MZI’s Keysbrook Project using the DCF method, we have relied on the

Technical Assessment Report based on SRK’s review of the technical project assumptions contained in the

cash flow models of the Project.

We did not apply the QMP approach as our secondary methodology as there is insufficient trading data

post announcement to enable this to be a reliable approach to use.

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11. Pre-Transaction Value of MZI’s shares

11.1 Sum-of-Parts valuation of MZI

We have employed the Sum-of-Parts method in estimating the Pre-Transaction Value of MZI’s shares by

aggregating the estimated fair market values of its underlying assets and liabilities, having consideration

to the following:

the value of MZI’s Keysbrook Project; and

the value of other assets and liabilities of MZI.

The Pre-Transaction Value of MZI is determined on the assumption that the Company has secured the

Project Debt Facilities but without the provision of the Funding Package. To finance the Project in the

absence of the Funding Package, additional funds need to be raised by further equity through a share

placement either to a third party or to current shareholders under a rights issue.

The value of MZI’s assets on a going concern basis is reflected in our valuation below:

Low value Mid value High value

Summary of Assessment Section $'000 $'000 $'000

DCF value of Keysbrook Project to equity holders 11.1.1 41,000 48,000 55,000

Value of remaining resources 11.1.2 - - -

Other assets and liabilities 11.1.3 (2,010) (2,010) (2,010)

Surplus cash from capital raising before corporate costs 11.1.4 17,876 17,876 17,876

Less: Present value of corporate costs 11.1.5 (23,063) (23,063) (23,063)

Value of MZI under Sum-of-Parts method

33,803 40,803 47,803

Number of MZI shares (‘000) 11.1.6 9,216,904 9,216,904 9,216,904

Value per share on a controlling basis ($) 0.0037 0.0044 0.0052


The table above indicates that the Pre-Transaction Value of an MZI share using the Sum-of-Parts approach

is between $0.0037 and $0.0052, with a mid-point value of $0.0044. The value of an MZI share derived

under the Sum-of-Parts method is reflective of a controlling interest.

11.1.1 DCF Valuation of the Keysbrook Project

We selected the DCF approach in valuing the Keysbrook Project. The DCF approach estimates the fair

market value by discounting the future cash flows arising from the project to their net present value.

Performing a DCF valuation requires the determination of the following:

The expected future cash flows that the Keysbrook Project is expected to generate; and

An appropriate discount rate to apply to the cash flows of the Keysbrook Project to convert them

to present value equivalent.

11.1.1.1 Keysbrook Project – Future cash flows

A cashflow model for the Keysbrook Project was prepared by the directors of MZI (‘Keysbrook DCF

Model’). The Keysbrook DCF Model estimates the future cash flows expected from mineral sands

production at the Keysbrook Project based on determined JORC compliant reserves for an expected mine

life of 5.5 years.

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The Keysbrook DCF Model depicts forecasts of nominal, post-tax cash flows over the life of mine on a

monthly and annual basis. The main assumptions underlying the Keysbrook DCF Model include:

Mining and production volumes;

Grades;

Commodity prices;

Operating, processing and transportation costs;

Start-up and sustaining capital expenditure;

Royalties and corporate tax; and

Discount rate.

We undertook the following analysis on the Keysbrook DCF Model:

Appointed SRK as technical expert to review, and where required, provide changes to the

technical assumptions underlying the Keysbrook DCF Model;

Conducted independent research on certain economic and other inputs such as commodity prices,

inflation and discount rate applicable to the future cash flows of the Keysbrook Project

Held discussions with MZI’s management regarding the preparation of the forecasts in the

Keysbrook DCF Model and its views

Adjusted the Keysbrook DCF Model to reflect any changes to the technical assumptions as a result

of SRK’s review and any changes to the economic and other input assumptions from our research

Performed a sensitivity analysis on the value of the Keysbrook Project as a result of flexing

selected assumptions and inputs.

Appointment of a technical expert

We engaged SRK to prepare a report providing a technical assessment of the project assumptions

underlying the Keysbrook DCF Model. SRK’s assessment involved the review and provision of input on the

reasonableness of the assumptions adopted in the Keysbrook DCF Model, including but not limited to:

Mining physicals (including volume mined, recovery and grade);

Processing assumptions (including products and recovery, scheduling and plant utilization);

Operating costs (comprising direct operating expenditure and certain fixed costs);

Capital expenditure (development and sustaining capital required); and

Other relevant assumptions.

A copy of SRK’s Technical Assessment Report is included in Appendix 4.

Limitations

Since forecasts relate to the future, they may be affected by unforeseen events and they depend, in part,

on the effectiveness of management’s actions in implementing the plans on which the forecasts are based.

Accordingly, actual results may vary materially from the forecasts, as it is often the case that some events

and circumstances frequently do not occur as expected, or are not anticipated, and those differences may

be material.

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Economic assumptions

Foreign exchange rate

All commodity prices are stated in United States Dollars (‘USD’ or ‘US$’) and the cash flows in the

Keysbrook DCF Model are in Australian Dollars (‘AUD’ or ‘A$’). The conversions from USD to AUD were

undertaken using the following foreign exchange rate assumptions:

Period 1 AUD: x USD

CY2014 0.895

CY2015 0.880

CY2016 0.875

CY2017 onwards 0.855

Source: Bloomberg

Inflation

The Keysbrook DCF Model has been prepared on a nominal basis using an annual inflation rate of 2.5%.

Given the Reserve Bank of Australia’s (‘RBA’) target range for inflation is 2% to 3% we consider the 2.5% to

be reasonable.

Revenue assumptions

KLPL receives revenue from the following products:

Leucoxene 70;

Leucoxene 88; and

Zircon concentrate comprising;

o Contained zircon;

o Contained Leucoxene 70; and

o Contained Leucoxene 88.

Through its wholly owned subsidiary, KLPL which holds the Keysbrook Project, MZI has, or is in the process

of negotiations to obtain off take agreements for each of the products.

Leucoxene 70

KLPL entered into a sales agreement with E.I. du Pont de Nemours and Company (‘DuPont’), a Delaware

corporation, under which DuPont has undertaken to purchase 25,000 tonnes to 30,000 tonnes of

Leucoxene 70 product (‘L70 product’) at fixed prices, which can vary if the Ti02 content is above or below

agreed levels. The agreement is for a contract period of five years and the contracting parties have the

option to negotiate an extension of the contract term of up to five years.

Leucoxene 88

KLPL is currently in advanced negotiations to execute an off take agreement for the Leucoxene 88 product

(‘L88 product’) at a market based reference price.

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Zircon concentrate

KLPL has obtained a binding off take term sheet with Tricoastal Minerals (Holdings) Company Ltd

(‘Tricoastal’) under which Tricoastal has undertaken to purchase, for a five year term, 100% of the zircon

concentrate from the Keysbrook Project which is expected to be approximately 25,000 tonnes per annum.

We have incorporated forecast zircon prices into the pricing formula to determine the contained zircon

price. The zircon prices we have used are presented in the table below:

CY2015 CY2016 CY2017 CY2018

CY2019

onwards

Zircon price (US$/t) 1,392 1,451 1,518 1,555 1,668

Source: Consensus Forecasts

Contained Leucoxene 70

There is no recovery and hence no revenue for contained Leucoxene 70 in the zircon concentrate.

Contained Leucoxene 88

The price of contained L88 is also set out in a binding off take term sheet with Tricoastal.

Based on the technical work conducted on MZI’s zircon concentrate, the majority of the contained TiO2

was rutile, which is a product with TiO2 content greater than 95%. Therefore, we used forecast rutile

prices as the basis for the pricing of contained L88 in zircon concentrate. We note that the contained L88

in zircon concentrate is different from the L88 product.

The rutile prices we have incorporated into the pricing formula are presented in the table below:

CY2015 CY2016 CY2017 CY2018

CY2019

onwards

Rutile price (US$/t) 1,438 1,393 1,350 1,322 1,322

Source: Consensus Forecasts

Mining Physicals

The tables below show the technical mining assumptions that have been provided by SRK for use in the

Keysbrook DCF Model.

Keysbrook Project Mining

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

Ore mined (dry tonnes) 3,505,100 4,532,384 4,520,000 4,520,000 4,520,000 2,881,180

Heavy metal grade (%) 2.61% 2.62% 2.71% 2.81% 2.53% 2.59%

Contained heavy metal (tonnes) 91,566 118,528 122,375 127,049 114,353 74,537

Contained L70 21,738 27,273 37,882 37,464 30,928 22,192

Contained L88 49,013 60,824 55,734 54,903 58,592 36,692

Contained Zircon 12,118 15,497 16,881 18,992 15,218 9,999

Contained Other 8,698 14,934 11,878 15,690 9,615 5,654

Source: Keysbrook DCF Model and SRK

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Processing Assumptions

The tables below show the technical mining assumptions that have been provided by SRK for use in the

Keysbrook DCF Model.

Wet Plant Recoveries

Keysbrook Project Recoveries

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

Heavy Metal Recoveries

L70 (%) 92.1% 92.1% 92.1% 92.1% 92.1% 92.1%

L88 (%) 71.8% 71.8% 71.8% 71.8% 71.8% 71.8%

Zircon (%) 99.5% 99.5% 99.5% 99.5% 99.5% 99.5%

Other (%) 75.1% 75.1% 75.1% 75.1% 75.1% 75.1%


Keysbrook Project Recovered Heavy Metals

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

Heavy Metal Recovered

L70 (tonnes) 20,020 25,119 34,889 34,504 28,485 20,439

L88 (tonnes) 35,191 43,672 40,017 39,421 42,069 26,345

Zircon (tonnes) 12,057 15,419 16,797 18,897 15,142 9,949

Other (tonnes) 6,532 11,216 8,920 11,783 7,221 4,246

Silica in HMC (tonnes) 13,024 16,840 17,757 18,460 16,397 10,761


-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Forecast CY 2015

Forecast CY 2016

Forecast CY 2017

Forecast CY 2018

Forecast CY 2019

Forecast CY 2020

Ore

Min

ed (

dry

Kt)

Keysbrook Project - Ore Mined (dry tonnes)

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Dry Plant Recoveries

Keysbrook Project Feed Dry Plant

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

L70 (tonnes) 20,020 25,119 34,889 34,504 28,485 20,439

L88 (tonnes) 35,191 43,672 40,017 39,421 42,069 26,345

Zircon (tonnes) 12,057 15,419 16,797 18,897 15,142 9,949

Other (tonnes) 6,532 11,216 8,920 11,783 7,221 4,246

Silica in HMC (tonnes) 13,024 16,840 17,757 18,460 16,397 10,761


Keysbrook Project Product Recoveries (excl

Zircon)

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

L70 (%) 100% 100% 100% 100% 100% 100%

L88 (%) 89.9% 89.9% 89.9% 89.9% 89.9% 89.9%

L88 in Zircon (%) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

L70 in Zircon (%) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

L70 in Other (%) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Silica Sand (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%


Keysbrook Project Zircon Recoveries

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

L70 (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

L88 (%) 94.1% 94.1% 94.1% 94.1% 94.1% 94.1%

Zircon (%) 99.1% 99.1% 99.1% 99.1% 99.1% 99.1%

Other (%) 90.0% 90.0% 90.0% 90.0% 90.0% 90.0%

Silica Sands (%) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%


Product Summary

The tables below show the production forecasts for the Project based on the technical mining assumptions

that have been provided by SRK for use in the Keysbrook DCF Model.

Keysbrook Project Product Summary

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

L70 Product 18,647 26,388 35,837 34,961 28,862 22,140

L88 Product 29,001 40,601 36,180 36,016 37,582 25,319

Zircon Concentrate Product 19,940 30,898 29,307 33,914 25,917 17,840

TOTAL 67,588 97,887 101,325 104,891 92,361 65,299


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Operating Costs

Operating costs included in the Keysbrook DCF Model consist of mining operations, processing, transport,

administration, rehabilitation and environment, landowner payments and mine closure costs. The table

below shows the forecast operating costs per annum for the life of mine. These amounts have been

confirmed by SRK.

Keysbrook Project

Operating Costs Units

Forecast

CY2015

Forecast

CY2016

Forecast

CY2017

Forecast

CY2018

Forecast

CY2019

Forecast

CY2020

Mining A$/t mined 2.15 2.51 2.71 3.03 3.16 4.98

Wet Plant A$/t mined 1.67 1.99 2.04 2.04 2.21 2.43

Dry Plant A$/t feed 65.12 68.25 67.43 67.43 74.69 83.56

Transport A$/t feed 24.18 28.81 28.74 29.37 29.82 34.15

Administration A$’000 1,692 2,301 2,352 2,411 2,472 1,882

Landowner & Community

Payments A$’000 1,039 227 459 982 1,508 67

Rehab and Environment A$’000 508 1,530 1,529 1,431 1,293 998


Capital Expenditure

The table below shows the forecast capital costs per annum for the life of mine. These amounts have been

confirmed by SRK.

Keysbrook Project Capital

Costs

Forecast

CY2014

(A$’000)

Forecast

CY2015

(A$’000)

Forecast

CY2016

(A$’000)

Forecast

CY2017

(A$’000)

Forecast

CY2018

(A$’000)

Forecast

CY2019

(A$’000)

Forecast

CY2020

(A$’000)

Total Construction Costs 66,734 14,818 - - - - -

Total Sustaining Capex - 429 2,063 906 50 426 475

Property purchase - - - - - 6,000 -

Mine Closure - - - - - - 4,751

Disposal of land - - - - - - (13,207)

Disposal of plant and

equipment - - - - - - (17,335)

TOTAL CAPEX 66,734 15,247 2,063 906 50 6,426 (25,316)


Royalties

MZI will be liable to pay two royalties upon the commencement of operations at Keysbrook, each of which

is discussed in the following sections:

a royalty to be paid to RCF in accordance with the Royalty Purchase; and

a royalty to be paid to Stirling Zircon Pty Ltd and Stirling Resources Limited as part of a legal

settlement.

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RCF Royalty

The RCF royalty is a 2% gross production revenue royalty payable by KLPL to RCF in accordance with the

Royalty Purchase. The royalty is calculated as 2% of the revenue from the Project. The table below shows

the forecast royalty to be paid over the life of mine.

RCF Royalty

Forecast

CY2015

(A$’000)

Forecast

CY2016

(A$’000)

Forecast

CY2017

(A$’000)

Forecast

CY2018

(A$’000)

Forecast

CY2019

(A$’000)

Forecast

CY2020

(A$’000)

Total Revenue from product sales 64,387 86,648 86,444 87,474 84,277 57,046

Royalty Rate (%) 2% 2% 2% 2% 2% 2%

Royalty Payable 1,288 1,733 1,729 1,749 1,686 1,141

Source: Keysbrook DCF Model

Stirling Royalty

As part of the settlement reached between MZI and Stirling Zircon Pty Ltd and Stirling Resources Limited

(collectively to be referred to as ‘Stirling’) to settle its legal action against Stirling, MZI has undertaken to

pay a 0.5% gross revenue royalty to Stirling from its Keysbrook Project up to 15 March 2020 (‘Stirling

Royalty’). The table below shows the forecast royalty to be paid over the life of mine.

Stirling Royalty

Forecast

CY2015

(A$’000)

Forecast

CY2016

(A$’000)

Forecast

CY2017

(A$’000)

Forecast

CY2018

(A$’000)

Forecast

CY2019

(A$’000)

Forecast

CY2020

(A$’000)

Total Revenue from product sales 64,387 86,648 86,444 87,474 84,277 13,1641

Royalty Rate (%) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Royalty Payable 322 433 432 437 421 66

1 Revenue has been adjusted proportionately to reflect the Stirling Royalty being payable up to 15 March 2020

Source: Keysbrook DCF Model

Taxation

Tax has been applied at 30% which represents the current corporate tax rate in Australia. The tax

calculation also takes into account MZI’s brought forward tax losses in the revenue account which amount

to A$4.8 million.

Residual values

At the end of the mine life, residual values are assumed for the following:

three parcels of land at an estimated value of $11.2 million, escalated at the rate of inflation up

to the end of the mine life; and

plant and equipment at an estimated value of $14.7 million, escalated at the rate of inflation up

to the end of the mine life.

11.1.1.2 DCF valuation – discount rate

We have selected a nominal after tax discount rate of 17.3% to discount the forecasts to their present

value in our base case.

In our sensitivity analysis we have adopted a discount rate range of 15.3% to 19.3%. In selecting this range

of discount rates we considered the following:

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The rates of return for comparable listed mineral sands companies;

The debt to equity ratio of MZI following the provision of the Funding Package; and

The risk profile of MZI as compared to other listed companies with mineral sands operations.

Details of our discount rate determination are provided in Appendix 3.

11.1.1.3 DCF Valuation – sensitivities

The estimated value of the Keysbrook Project is derived under the DCF approach. Our valuation is highly

sensitive to changes in the forecast mineral sands prices and the USD exchange rate. We have therefore

included an analysis to consider the value of the Keysbrook Project under various pricing scenarios and in

applying:

A change of +/- 10% to the dry metric tonnes of ore mined;

A change of +/- 10% to heavy metal grade;

A change of +/- 10% to heavy metal recovery percentages;

A change of +/- 10% to the Leucoxene 88 price;

A change of +/- 10% to the contained Zircon price;

A change of +/- 10% to the contained Leucoxene 88 price;

A change of +/- 10% to operating costs;

A change of +/- 10% to capital costs;

A change of +/- 10% to the USD:AUD exchange rate; and

A discount rate in the range of 15.3% to 19.3%.

The following table sets out the valuation outcomes from our DCF analysis:

Sensitivity Analysis

Flex NPV (A$m) NPV (A$m) NPV (A$m)

NPV

(A$m)

NPV

(A$m) NPV (A$m) NPV (A$m)

NPV

(A$m) NPV (A$m)

Leucoxene

88 price

Contained

Zircon

Price

Contained

Leucoxene

88 Price

Tonnes

Mined

(dmt)

Heavy

Metal

Grade

Heavy

Metal

Recoveries

Operating

Costs

Capital

Costs

Exchange

Rate

USD:AUD

-10% 39.15 44.10 47.04 42.99 42.99 42.99 55.59 54.46 67.30

-8% 40.95 44.91 47.27 44.02 44.02 44.02 54.10 53.20 63.14

-6% 42.76 45.73 47.49 45.06 45.06 45.06 52.61 51.94 59.16

-4% 44.56 46.54 47.71 46.09 46.09 46.09 51.13 50.68 55.34

-2% 46.36 47.35 47.94 47.13 47.13 47.13 49.64 49.42 51.68

0% 48.16 48.16 48.16 48.16 48.16 48.16 48.16 48.16 48.16

2% 49.96 48.97 48.38 49.19 49.19 49.19 46.67 46.90 44.78

4% 51.76 49.78 48.61 50.23 50.23 50.23 45.19 45.64 41.53

6% 53.56 50.59 48.83 51.26 51.26 51.26 43.70 44.38 38.41

8% 55.37 51.41 49.05 52.30 52.30 52.30 42.22 43.12 35.40

10% 57.17 52.22 49.28 53.33 53.33 53.33 40.73 41.86 32.50

Source: BDO Analysis

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Discount rate sensitivity

Discount rate (%) 15.3% 16.3% 17.3% 18.3% 19.3%

NPV (A$m) 53.55 50.78 48.16 45.69 43.35

Source: BDO Analysis

Considering the valuation outcomes above, we estimate the fair market value of the Keysbrook Project to

be in the range of $41 million to $55 million, with a midpoint value of $48 million.

11.1.2 Value of other exploration assets

SRK has not independently valued MZI’s exploration leases in the Northern Territory as we have been

advised by MZI that they are not expected to be material at this stage of their development.

SRK has not valued the additional resources at the Keysbrook Project that are not included in the model as

MZI does not have the rights to access and develop the additional land areas. Under the Valmin Code, the

Company must have the rights to the tenements in order to attribute value to them.

11.1.3 Other Assets and Liabilities

Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted.

From review of these other assets and liabilities, outlined in the table below, we do not believe that there

is a material difference between their book value and their fair value unless an adjustment has been

noted below. The table below represents a summary of the assets and liabilities identified:

Pre-Transaction Value of other Adjusted value of other

Other assets and liabilities assets & liabilities assets & liabilities

Note $'000 $'000

CURRENT ASSETS

Cash and cash equivalents (a) 5,180 1,874

Trade and other receivables 1,000 1,000

Other current assets 42 42

TOTAL CURRENT ASSETS 6,222 2,917

NON-CURRENT ASSETS

Trade and other receivables 690 690

Property, plant and equipment (b) 4,004 1,102

Exploration and evaluation expenditure (c) 1,553 1,553

Mine development expenditure (c) 19,788 -

TOTAL NON-CURRENT ASSETS 26,035 3,345

TOTAL ASSETS 32,257 6,261

LIABILITIES

Current loans and borrowings (d) 4,650 1,958

Non-current loans and borrowings 1,072 1,072

Other current and non-current liabilities (e) 6,520 5,241

TOTAL LIABILITIES 12,242 8,271

NET ASSETS 20,015 (2,010)


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The following adjustments were made to determine the value of other assets and liabilities that have not

been accounted for in the Keysbrook DCF Model.

Note a: Cash & cash equivalents

We were provided with MZI’s balance sheet as at 31 March 2014 which showed that cash and cash

equivalents had reduced by $4.125 million to $1.035 million. Over the three months between 1 January

2014 and 31 March 2014, the majority of the cash was utilised in the following areas:

increase in property, plant and equipment;

exploration and evaluation expenditure;

mine development expenditure;

reduction in current and non-current trade and other payables;

reduction in other financial liabilities; and

payment of corporate overheads.

The change in net asset position between 31 December 2013 and 31 March 2014 was not material. MZI has

also confirmed that there have not been any material changes in the balance sheet since 31 March 2014.

We have assumed the drawdown of the Additional Amount of US$1 million, which when converted at an

exchange rate of USD:AUD 0.9284, would be approximately $1.077 million.

Interest is capitalised under both the RCF Interim Facility (including the Additional Amount drawn down

under that facility). We adjusted the cash position for a total of $0.238 million in capitalised interest

under the RCF Interim Facility.

The adjustment to the cash balance is as follows:

Cash position $’000

Cash position as at 31 December 2013 5,180

Reduction in cash between 31 December 2013 and 31 March 2014 (4,145)

Capitalised interest on RCF Interim Facility (238)

Cash received from the drawdown of the Additional Amount 1,077

Adjusted cash position 1,875

Source: MZI’s management accounts and BDO analysis

Note b: Property, plant and equipment

We excluded the value of the property, plant and equipment which relates to the Keysbrook Project as

the value has been incorporated in the DCF valuation of the Project. The majority of the remaining value

relates to office equipment. We further adjusted for the increase in property, plant and equipment

between 31 December 2013 and 31 March 2014.

Note c: Exploration, evaluation and mine development expenditure

We have excluded mine development expenditure from the other assets and liabilities as these assets have

been valued separately in our DCF valuation. The $1.553 million of capitalised exploration and evaluation

expenditure relates to the new Tiwi Islands project; therefore we have not removed this asset.

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Note d: Current Loans and borrowings

Current loans and borrowings as at 31 December 2013 were adjusted for the repayment of US$3.5 million

owing under the RCF Interim Facility, which if converted at an exchange rate of USD:AUD 0.9287 as at 30

April 2014, would be approximately $3.769 million. We have assumed that equity funds raised through a

placement will include cash raised to repay the RCF Interim Facility due on 30 June 2014.

We have included the Additional Amount of $1.077 million (converted from US$1 million at an exchange

rate of USD:AUD 0.9284) which was drawn down under the RCF Interim Facility on 23 April 2014.

Note e: Other current and non-current liabilities

Over the three months between 1 January 2014 and 31 March 2014, the reduction in cash balance was

utilised in part to reducing other current and non-current liabilities by $1.279 million. We have therefore

adjusted this balance to $5.241 million.

11.1.4 Surplus cash from equity capital raising before corporate costs

The excess cash received from MZI’s equity capital raising is added to reflect surplus cash to the Company,

and is calculated as follows:

Surplus cash from equity capital raising before corporate costs US$’000 A$’000

Equity funds to be raised through a placement 43,500 47,803

Funds used to repay the RCF Interim Facility (3,500) (3,769)

Funds used to repay the Additional Amount (1,000) (1,077)

Funds used to fund Project construction capital expenditure N/A (81,553)

Cash received from Project Debt Facilities (excluding guarantee facility of $12.124 million) 52,614 56,790

Surplus cash from equity capital raising before corporate costs 17,876

Note: Additional Amount converted at USD:AUD 0.9284 per terms of agreement

Note: Other USD to AUD conversions are converted at USD:AUD 0.9287


11.1.5 Corporate costs

Corporate expenses incurred in FY13 were approximately $7.23 million. Forecast corporate costs are

$6.276 million in FY14 and $5.794 million from FY15.

We calculated the corporate costs over the 5.5 year life of mine, inflating these costs at 2.5% per annum

over the period. The net present value of MZI’s corporate costs, discounted at MZI’s cost of equity, is

approximately $24.308 million. We have deducted $1.244 million from this amount to reflect the present

value of corporate costs already included in the DCF model.

11.1.6 Shares on Issue

MZI currently does not have sufficient funds to fund the Keysbrook Project. In the absence of the Funding

Package, the Company can either sell the Project without developing it, or raise the required funds

through alternative sources. Considering that the intention of the Company is to develop the Project, we

have based our Pre-Transaction Value incorporating a notional capital raising.

Assuming that the Project Debt Facilities are already in place, the Company will need to raise additional

equity funds to ensure that the Project is fully funded. We have considered the likely price at which MZI

will have to place its shares to a third party or to current shareholders under a rights issue.

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MZI will have to raise approximately $47.49 million in equity. Assuming a 6% capital raising cost (which MZI

has incurred in the past), total equity funds required to be raised would be approximately $50.33 million.

To determine the likely placement price, we considered the volume weighted average price of MZI’s share

and the discount at which shares have been issued by ASX listed companies when compared with the

companies’ share prices the day prior to the announcement of the placements.

We considered the discount at which shares have been issued over the past two years by ASX listed mining

companies with market capitalisations of between $25 million to $100 million (a band in which MZI’s

market capitalisation falls). From our analysis, the average discount was 20%.

This analysis is summarised in the table below:

Details

Number of capital raisings 32

Average raising amount $9.7 million

Average market capitalisation $44.4 million

Average discount 20%

Source: BDO Analysis and Bloomberg

Considering that MZI has had no success previously in sourcing alternative funds, we consider that a

discount greater than 20% will need to be applied to have any probability of raising the required funds.

We consider a reasonable discount of 30% to be applied to MZI’s share price of $0.011, being the mid-point

value per share derived under the QMP methodology in section 11.2. This share price reflects MZI’s trading

price prior to the announcement of the Funding Package. The assumed capital raising price that we have

adopted is therefore $0.0077 per share.

To raise an equivalent $50.33 million to provide the equity portion of the funding for the Project,

6,536,977,822 new shares would need to be issued at $0.0077 per share. Including the existing

2,679,925,837 shares on issue, the total number of MZI shares would therefore be 9,216,903,659.

As discussed in section 14.3.1 and in the Explanatory Memorandum, the directors have sought alternative

funding sources but this search has not been successful. We are required by RG111.15 to assess the

funding requirements for a company that is not in financial distress when considering its value, especially

when using the DCF methodology.

11.2 Quoted Market Prices for MZI Securities

We have assessed the quoted market price for an MZI share traded on the ASX.

The quoted market value of a company’s shares is reflective of a minority interest. A minority interest is

an interest in a company that is not significant enough for the holder to have an individual influence in the

operations and value of that company.

RG 111.11 suggests that when considering the value of a company’s shares for the purposes of approval

under Item 7 of s611 the expert should consider a premium for control. An acquirer could be expected to

pay a premium for control due to the advantages they will receive should they obtain 100% control of

another company. These advantages include the following:

control over decision making and strategic direction;

access to underlying cash flows;

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control over dividend policies; and

access to potential tax losses.

While RCF will not be obtaining 100% of MZI, RG 111 states that the expert should calculate the value of a

target’s shares as if 100% control were being obtained. RG 111.13 states that the expert can then

consider an acquirer’s practical level of control when considering reasonableness. Reasonableness has

been considered in Section 14.

Therefore, our calculation of the quoted market price of an MZI share including a premium for control has

been prepared in two parts. The first part is to calculate the quoted market price on a minority interest

basis. The second part is to add a premium for control to the minority interest value to arrive at a quoted

market price value that includes a premium for control.

Minority interest value

Our analysis of the quoted market price of an MZI share is based on the pricing prior to the announcement

of the Funding Package. This is because the value of an MZI share after the announcement may include

the effects of any change in value as a result of the Funding Package. However, we have considered the

value of an MZI share following the announcement when we have considered reasonableness in Section 14.

Information on the Project being fully funded was announced to the market on 10 April 2014. Therefore,

the following chart provides a summary of the share price movement over the 12 months to 9 April 2014

which was the last trading day prior to the announcement.

Source: Bloomberg

The closing daily price of MZI shares from 10 April 2013 to 9 April 2014 has ranged from a low of $0.010 on

9 April 2014 to a high of $0.024 on 24 April 2013.

MZI’s share price has varied considerably over the period and was generally traded every day throughout

the period. The highest volume of MZI shares was traded in September 2013, with 173,591,465 MZI shares

traded during the month, representing approximately 7% of the total volume of MZI shares in the market.

The increased volume of shares traded during September 2013 may be attributable to a number of

announcements by MZI during the period, including an announcement regarding funding of the Keysbrook

-

6.0

12.0

18.0

24.0

30.0

0.000

0.005

0.010

0.015

0.020

0.025

Volu

me (

millions)

Share

Pri

ce (

$)

MZI share price and trading volume history

Volume Closing share price

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Project on 5 September 2013 and announcement of the settlement of a legal dispute on 13 September

2013.

During this period a number of announcements were made to the market. The key announcements are set

out below:

Date Announcement

Closing Share Price Following Announcement

Closing Share Price Three

Days After Announcement

$ (movement) $ (movement)

9/04/2014 Trading Halt 0.011 10.0%

0.016 45.5%

1/04/2014 Loan facility variations agreed with RCF 0.011 0.0%

0.016 45.5%

30/01/2014 Quarterly Cashflow Report 0.012 0.0%

0.016 33.3%

30/01/2014 Quarterly Activities Report 0.012 0.0%

0.011 8.3%

13/01/2014 MZI signs a further off-take agreement for

Keysbrook Project 0.012 0.0%

0.012 0.0%

19/12/2013 RCF Provides Additional Funding Support 0.011 0.0%

0.011 0.0%

4/11/2013 MZI announces $5m equity raising 0.015 0.0%

0.015 0.0%


0.016 6.7%

31/10/2013 Trading Halt 0.015 0.0%

0.016 6.7%

15/10/2013 Keysbrook Project Financing Update 0.014 12.5%

0.014 0.0%

11/10/2013 Trading Halt 0.016 0.0%

0.013 18.8%

2/10/2013 RCF agrees to provide US$41.5m funding package

for Keysbrook 0.017 21.4%

0.016 5.9%

1/10/2013 Trading Halt 0.014 0.0%

0.015 7.1%

18/09/2013 Placement with Argonaut Securities 0.018 5.9%

0.017 5.6%

12/09/2013 Response to ASX Price and Volume Query 0.021 10.5%

0.017 19.0%


0.013 13.3%


0.013 13.3%

17/07/2013 Argonaut underwrites $3m share purchase plan 0.014 0.0%

0.014 0.0%

10/07/2013 Settlement of Stirling Dispute 0.015 15.4%

0.015 0.0%

1/07/2013 New cornerstone shareholder and Share Purchase

Plan 0.014 0.0%

0.014 0.0%

28/06/2013 Trading Halt 0.014 0.0%

0.015 7.1%

17/06/2013 Port Services Agreement executed 0.015 25.0%

0.016 6.7%

22/05/2013 Keysbrook Funding Update 0.017 5.6%

0.018 5.9%


0.019 0.0%


0.019 0.0%

24/04/2013 MZI signs Sales Agreement with DuPont 0.020 4.8%

0.019 5.0%

23/04/2013 Trading Halt 0.021 0.0%

0.019 9.5%

22/04/2013 MZI Finalises Toll Treating Agreement with Doral 0.021 0.0%

0.020 4.8%

Source: Bloomberg

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On 15 October 2013, MZI announced that it was recommencing negotiations with leading mining finance

banks to try and secure the remainder of the funding necessary in order to finance the development of the

Keysbrook Project after one of the two banks MZI had previously held discussions with withdrew from the

funding process. The market reacted negatively to this announcement and MZI’s share price fell 12.5% to

$0.014.

On 2 October 2013, MZI announced that RCF had agreed to provide a US$41.5 million funding package to

assist with the funding of the Keysbrook Project. This announcement resulted in a 21.4% increase in the

Company’s share price.

On 18 September 2013, MZI announced a placement with Argonaut Securities of 33,333,334 shares at 1.5

cents per share to raise $0.5 million. The market reacted positively to this news with MZI’s share price

increasing 5.9% following the announcement. However, the market corrected and MZI’s share price fell

11.1% in the three days following the announcement to $0.016.

On 12 September 2013, MZI responded to an ASX Price and Volume Query after the Company’s share price

increased by approximately 10.5%. MZI confirmed that it was not aware of any information or aware of any

other explanation for recent price changes and increase in the volume of trading.

On 10 July 2013, MZI announced that it had reached an in-principle agreement to settle its legal dispute

with Stirling Zircon Pty Ltd and Stirling Resources Limited. The market reacted positively to this

announcement and MZI’s share price increased 15.4% to $0.015 following the announcement.

On 17 June 2013, MZI announced that it had executed a Port Services Agreement with the Bunbury Port

Authority which provided MZI with sufficient capacity to export all the mineral sands which will be

produced at its Keysbrook project. This contract was for seven years and covers the export of leucoxene

and zircon. The market reacted positively to this and MZI’s share price increased 25% to $0.015 and a

further 7% to $0.016 in the three days following.

On 24 April 2013, MZI announced that had signed a Sales Agreement with DuPont which would cover all

Leucoxene 70 from MZI’s Keysbrook project. The market reacted negatively to this announcement with

MZI’s share price falling 5% to $0.020 following the announcement and a further 5% in the three days

following the announcement to $0.019.

On 22 April 2013, MZI announced that it had finalised a processing agreement with Doral Mineral Sands.

The market did not react to this immediately following the announcement although MZI’s share price fell

5% in the three days following.

To provide further analysis of the market prices for an MZI share, we have also considered the weighted

average market price for 10, 30, 60 and 90 day periods to 9 April 2014.

9 April 2014 10 Days 30 Days 60 Days 90 Days

Closing Price $0.011

Weighted Average $0.011 $0.012 $0.012 $0.012

Source: Bloomberg, BDO analysis

The above weighted average prices are prior to the date of the announcement of the Funding Package, to

avoid the influence of any increase in price of MZI shares that has occurred since the Funding Package was

announced.

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An analysis of the volume of trading in MZI shares for the 12 months to 9 April 2014 is set out below:

Trading days Share price low Share price high Cumulative Volume traded As a % of Issued capital

1 day $0.010 $0.011 3,245,455 013%

10 days $0.010 $0.012 19,346,170 0.78%

30 days $0.010 $0.014 84,012,379 3.39%

60 days $0.010 $0.014 170,229,414 6.88%

90 days $0.010 $0.014 209,974,705 8.48%

180 days $0.010 $0.023 589,223,150 23.80%

1 year $0.010 $0.024 733,496,845 29.63%

Source: Bloomberg, BDO analysis

This table indicates that MZI’s shares display a moderate level of liquidity, with 29.63% of the Company’s

current issued capital being traded in a 12 month period. We note that in the last 30 trading days, 3.39%

of the issued capital was traded indicating that the shares were slightly more liquid during this period.

The VWAP during the last 30 day period was relatively stable between $0.011 and $0.012 per share.

For the quoted market price methodology to be reliable there needs to be a ‘deep’ market in the shares.

RG 111.69 indicates that a ‘deep’ market should reflect a liquid and active market. We consider the

following characteristics to be representative of a deep market:

Regular trading in a company’s securities;

Approximately 1% of a company’s securities are traded on a weekly basis;

The spread of a company’s shares must not be so great that a single minority trade can significantly

affect the market capitalisation of a company; and

There are no significant but unexplained movements in share price.

A company’s shares should meet all of the above criteria to be considered ‘deep’, however, failure of a

company’s securities to exhibit all of the above characteristics does not necessarily mean that the value

of its shares cannot be considered relevant.

In the case of MZI, the analysis shows that over the 12 month period, the market has not been deep.

However, they have displayed a moderately higher level of liquidity over the last 30 trading days and the

VWAP over that period was consistent with that of the 90 day VWAP.

Our assessment is that a range of values for MZI shares based on market pricing, after disregarding post

announcement pricing, is between $0.010 and $0.012.

Control Premium

The QMP valuation per share reflects the value to a minority interest shareholder. To value an MZI share

on a control basis, we have added a control premium based on our analysis set out below.

We have reviewed the control premiums paid by acquirers of all companies listed on the ASX. We have

summarised our findings below:

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Year Number of

Transactions

Average Deal Value

(A$m)

Average Control

Premium (%)

2013 36 143.63 50.86

2012 48 364.43 41.32

2011 64 799.28 45.07

2010 63 794.58 40.23

2009 61 328.42 44.87

2008 39 827.80 40.83

2007 81 1045.80 22.20

2006 90 688.47 25.12

Mean 624.05 38.81

Median 741.53 41.08

Source: Bloomberg and BDO analysis

In arriving at an appropriate control premium to apply we note that observed control premiums can vary

due to the:

Nature and magnitude of non-operating assets;

Nature and magnitude of discretionary expenses;

Perceived quality of existing management;

Nature and magnitude of business opportunities not currently being exploited;

Ability to integrate the acquiree into the acquirer’s business;

Level of pre-announcement speculation of the transaction;

Level of liquidity in the trade of the acquiree’s securities.

Based on the analysis above, we consider that the long term control premium paid for ASX-listed

companies is in the order of 30% to 40%, which we have adopted in our valuation.

Quoted market price including control premium

Applying a control premium to MZI’s quoted market share price results in the following quoted market

price value including a premium for control:

Low

$

Midpoint

$

High

$

Quoted market price value 0.010 0.011 0.012

Control premium 30% 35% 40%

Quoted market price valuation including a premium for control 0.013 0.015 0.017


Therefore, our valuation of an MZI share based on the quoted market price method and including a

premium for control is between $0.013 and $0.017, with a midpoint value of $0.015.

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11.3 Net asset value of MZI

The book value of MZI’s assets on a going concern basis is reflected in our valuation below:

Net asset value

Reviewed as at Pre-transaction

31-Dec-13 Net Asset Value

Note $'000 $'000

CURRENT ASSETS


Trade and other receivables

1,000 1,000

Inventories

- -

Other current assets

42 42

Assets classified as held for sale

- -

TOTAL CURRENT ASSETS

6,222 7,299

NON-CURRENT ASSETS

Trade and other receivables

690 690

Property, plant and equipment

4,004 4,004

Exploration and evaluation expenditure

1,553 1,553

Mine development expenditure (b) 19,788 19,788

TOTAL NON-CURRENT ASSETS

26,035 26,035

TOTAL ASSETS

32,257 33,334

CURRENT LIABILITIES

Trade and other payables

3,891 3,891

Provisions

290 290

Other financial liability

900 900

Loans and borrowings (c) 4,650 5,726

TOTAL CURRENT LIABILITIES

9,731 10,807

NON-CURRENT LIABILITIES

Trade and other payables

439 439

Provisions

120 120

Other financial liability

880 880

Loans and borrowings

1,072 1,072

TOTAL NON-CURRENT LIABILITIES

2,511 2,511

TOTAL LIABILITES

12,242 13,318

Value

20,015 20,015

Number of shares on issue ('000) (d)

2,679,925.837

Value per share (control basis)

0.007

Source: MZI’s reviewed financial statements as at 31 December 2013 and BDO analysis

The table above indicates the net asset value of an MZI share is $0.007 per share. The net asset value per

share represents a control value per share.

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Note a: Cash and cash equivalents

We were provided with MZI’s balance sheet as at 31 March 2014 which showed that cash and cash

equivalents had reduced to $1.035 million. Over the three months between 1 January 2014 and 31 March

2014, the cash was utilised in the following areas:

increase in property, plant and equipment;

exploration and evaluation expenditure;

mine development expenditure;

reduction in current and non-current trade and other payables;

reduction in other financial liabilities; and

payment of corporate overheads.

The change in net asset position between 31 December 2013 and 31 March 2014 was not material. MZI has

also confirmed that there have not been any material changes in the balance sheet since 31 March 2014.

On 1 April 2014, MZI announced that RCF had agreed to provide an additional US$1 million to ensure the

Company has sufficient funds to continue the engineering, design work and other activities at its

Keysbrook Project. The Additional Amount of US$1 million (or A$1.077 million converted at the exchange

rate of USD:AUD 0.9284 per the terms of the agreement) made available by RCF under the RCF Interim

Facility was drawn on 23 April 2014.

The adjustment to the cash balance is as follows:

Cash position $’000

Cash position as at 31 December 2013 5,180

Cash received from the drawdown of the Additional Amount 1,077

Adjusted cash position 6,257

Source: MZI’s management accounts and BDO analysis

Note b: Exploration and evaluation expenditure and mine development expenditure

As at 31 December 2013, all mine development expenditure related to the Keysbrook Project. For the

purpose of our valuation, the mineral assets of MZI have not been independently valued. We have adopted

the book value as at 31 December 2013 in our NAV valuation. The book value reflects the amortised costs

and therefore may understate the value of the Keysbrook Project.

Note c: Loans and borrowings

We have increased the loans and borrowings by the Additional Amount as this was drawn on 23 April 2014.

Note d: Number of shares on issue

The shares on issue are on an undiluted basis due to all of MZI’s options on issue being ‘out of the money’

based on the current quoted market of an MZI share. We have used the number of shares on issue as at 30

April 2014 of 2,679,925,837.

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11.4 Assessment of MZI’s Value

The results of the valuations performed are summarised in the table below:

Low

$

Midpoint

$

High

$

Sum-of-Parts method (section 11.1) 0.0037 0.0044 0.0052

QMP method (section 11.2) 0.0130 0.0150 0.0170

NAV method (section 11.3) 0.0070 0.0070 0.0070


We note that the values obtained under the QMP method are higher than the values obtained from the

Sum-of-Parts and NAV methods. The difference between the values obtained under the QMP method and

the Sum-of-Parts and NAV methods may be explained by the following:

the QMP value reflects investors’ perception of the future prospects of MZI and may have taken into

account more positive sentiments and assumptions on future commodity prices and the prospects of

the Keysbrook Project;

investors may have made different assumptions on the Keysbrook Project, including exchange rates,

discount rates, inflation rates and level of required dilution that may affect their valuation of the

Keysbrook Project;

our analysis in section 11.2 shows that the liquidity for MZI shares was low and therefore an absence

of a sufficiently active trading market to reflect a fair market value of the Company’s shares; and

the value derived under the NAV method is higher than the value derived under the Sum-of-Parts

method, which may be due to the NAV method not reflecting the additional debt that will be incurred

and additional shares that will be issued by MZI in financing the development of the Keysbrook

Project.

It is possible that the value of an MZI share could be maximised by selling the Keysbrook Project to a third

party. We have not considered this scenario as such a third party is unlikely to pay more than the DCF

value that we have used and would need to be also factor in their own funding availability and costs.

Therefore, we consider the Sum-of-Parts method to be the most appropriate method to value an MZI share

prior to the Funding Transaction.

Based on our analysis, we consider the value of an MZI share on a control basis to be between $0.0037 and

$0.0052, with a mid-point value of $0.0044.

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12. Valuation of MZI Post-Transaction

12.1 Sum-of-Parts valuation of MZI

We have employed the sum-of-parts method in estimating the Post-Transaction value of an MZI share by

aggregating the estimated fair market values of its underlying assets and liabilities, having consideration

to the following:

The value of MZI’s Keysbrook Project; and

The value of other assets and liabilities of MZI.

Maximum Scenario

The value of MZI’s assets on a going concern basis under the Maximum Scenario, assuming that the

maximum number of shares is issued to RCF under the Funding Package, resulting in RCF reaching a

maximum shareholding of 73.9%, is reflected in our valuation below:





Other assets and liabilities 12.1.1 (700) (700) (700)


Present value of corporate costs 11.1.5 (23,063) (23,063) (23,063)


35,113 42,113 49,113


Value per share on a controlling basis ($)

0.0040 0.0048 0.0056

Minority discount 29% 26% 23%

Minority value per share ($) 0.0028 0.0035 0.0043


The table above indicates that the Post-Transaction Value of an MZI share on a minority basis, using the

Sum-of-Parts approach under the Maximum Scenario, is between $0.0028 and $0.0043, with a mid-point

value of $0.0035.

The value of an MZI share derived under the Sum-of-Parts method is reflective of a controlling interest.

This suggests that the acquirer obtains an interest in the company which allows them to have an individual

influence on the operations and value of that company. However, if the Funding Package is approved, the

current Shareholders will be minority holders in MZI, meaning that their individual holding will not be

considered significant enough to have an individual influence on the operations and value of that

company.

Therefore, we have adjusted our valuation of an MZI share to reflect a minority interest holding. The

minority discount is based on the inverse of the control premium of 30% to 40% as set out in section 11.2

of our Report.

Minimum Scenario

We have also considered the scenario under the Minimum Scenario where, in order to avoid the maximum

dilution of Shareholders’ interest, MZI may not elect to settle its obligations through the issue of shares.

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Under the scenario where MZI minimises the number of new shares issued to RCF, this may result in a

minimum shareholding interest of 41.7% for RCF. The value of MZI’s assets on a going concern basis under

the Minimum Scenario is reflected in our valuation below:





Other assets and liabilities 12.1.1 (700) (700) (700)

Present value of cash payment obligations 12.1.2 (26,414) (26,414) (26,414)


Less: Present value of corporate costs 11.1.5 (23,063) (23,063) (23,063)


8,700 15,700 22,700


Value per share on a controlling basis ($)

0.0022 0.0040 0.0057

Minority discount 29% 26% 23%

Minority value per share ($) 0.0016 0.0029 0.0044


The table above indicates that the Post-Transaction Value of an MZI share on a minority basis, using the

Sum-of-Parts approach under the Minimum Scenario, is between $0.0016 and $0.0044, with a mid-point

value of $0.0029.

12.1.1 Other Assets and Liabilities

Other assets and liabilities represent the assets and liabilities which have not been specifically adjusted.

From review of these other assets and liabilities, outlined in the table below, we do not believe that there

is a material difference between their book value and their fair value unless an adjustment has been

noted below. The table below represents a summary of the assets and liabilities identified:

Other assets and liabilities Value of other Value of other

assets & liabilities assets & liabilities

Pre-Transaction Post-Transaction

Note $'000 $'000

CURRENT ASSETS


Trade and other receivables 1,000 1,000

Other current assets 42 42

TOTAL CURRENT ASSETS 6,222 4,227

NON-CURRENT ASSETS

Trade and other receivables 690 690

Property, plant and equipment 4,004 1,102

Exploration and evaluation expenditure 1,553 1,553

Mine development expenditure 19,788 -

TOTAL NON-CURRENT ASSETS 26,035 3,345

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Other assets and liabilities Value of other Value of other

assets & liabilities assets & liabilities

Pre-Transaction Post-Transaction

Note $'000 $'000

TOTAL ASSETS 32,257 7,572

LIABILITIES

Current loans and borrowings 4,650 1,958

Non-current loans and borrowings 1,072 1,072

Other current and non-current liabilities 6,520 5,241

TOTAL LIABILITIES 12,242 8,271

NET ASSETS 20,015 (700)


The value of other assets and liabilities following the Funding Transaction is the same as the value of

other assets and liabilities in section 11.1.3, except for cash. The difference in cash is explained below.

Note a: Cash & cash equivalents

The cash balance shown in section 11.1.3 of $2.10 million has been increased to $3.41 million. This

increase reflects the $1.31 million cash raised from the exercise of options issued to RCF for acceptance

fees.

12.1.2 Present value of cash payment obligations

Under the Minimum Scenario, in order to avoid the maximum dilution of Shareholders’ interest, MZI may

elect to settle its obligations with cash rather than the issue of shares. The Company has this discretion

under the following components of the Funding Package:

option to meet interest payments by cash or the issue shares of under the Convertible Loan;

option to meet interest payments by cash or the issue shares of the Bridge Finance Facility; and

option to repay the Bridge Finance Facility by cash or through the issue of shares.

We have also assumed that the Additional Amount and Extension Fee payable under the Additional Amount

is paid by cash.

We calculated the present value of all the cash payments that need to be made to meet the above

obligations. The net present value of these cash payment obligations, discounted at MZI’s cost of equity, is

approximately $26.414 million.

12.1.3 Shares on Issue

As analysed in section 4 of our Report, the number of shares that may be outstanding under the Maximum

Scenario is 8,846,950,057. The number of shares that may be outstanding under the Minimum Scenario

where MZI elects not to settle any of its obligations through the issue of shares is 3,961,832,088.

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13. Are the Transactions fair?

To assess whether the Transactions are fair, the Funding Transaction and the Security Transaction are

compared as follows.

13.1 Funding Transaction

We assessed fairness of the Funding Transaction by comparing the Pre-Transaction Value (or the value of

an MZI share on a control basis prior to the Funding Transaction) with the Post-Transaction Value (or the

value of an MZI share on a minority basis after the Funding Transaction) as follows:

Ref

Low Preferred High

$ $ $

Value of an MZI share on a controlling basis prior to the Funding

Transaction

11.4 0.0037 0.0044 0.0052


Transaction (under the Maximum Scenario)

12.1 0.0028 0.0035 0.0043


Transaction (under the Minimum Scenario)

12.1 0.0016 0.0029 0.0044


The table above shows that the value of an MZI share prior to the Funding Transaction (on a control basis)

is higher than the value of an MZI share after the Funding Transaction (on a minority interest basis) under

both the Maximum Scenario and the Minimum Scenario, and we therefore consider the Funding

Transaction to be not fair.

13.2 Security Transaction

As stated in section 9.2, the Security Transaction is fair if the value of the security provided is equal to or

less than the value of the liabilities settled in the event of default.

In the scenario that the value of the secured assets is greater than or equal to the amounts owed to RCF,

and there is an event of default, then RCF would only be entitled to recover the principal and interest

outstanding under the Funding Package.

In a scenario that the value of secured assets is less than the amounts owed to RCF, in an event of default,

then the secured assets would be sold and the proceeds provided to RCF. This can be summarised as

follows:

Scenario Consequence Fairness

Secured Assets > Liabilities to be settled Security provided = Liabilities Settled Fair

Secured Assets = Liabilities to be settled Security provided = Liabilities Settled Fair

Secured Assets < Liabilities to be settled Security provided < Liabilities Settled Fair


Therefore on the terms of the Funding Package, specifically if there is an event of default, then RCF is

only entitled to be repaid the principal and interest outstanding under the Funding Package, we consider

that the Security Transaction is fair in all scenarios.

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13.3 Conclusion on fairness

In our opinion:

the Funding Transaction is not fair to Shareholders; and

the Security Transaction is fair to Shareholders.

14. Are the Transactions reasonable?

14.1 Advantages of approving the Transactions

We set out the key advantages that approving the Transactions are expected to bring to Shareholders:

Funding Transaction

14.1.1 Ability to fund the Keysbrook Project into production

The Convertible Loan Facility, together with the other components of the Funding Package, is expected to

provide the equity/mezzanine finance portion of the Keysbrook Project development funding, and when

combined with the Project Debt Facilities, should provide all of the funds required to develop the

Keysbrook Project.

If the Funding Package is not approved, alternative funding would be required and the Company would

need to seek alternative sources of equity funding in order to secure the Project Debt Facilities. If MZI is

required to re-commence the process of negotiating alternative sources of equity funding, this is likely to

cause delays to securing the Project Debt Facilities and to the Keysbrook Project. In addition, there is a

high risk that MZI may not be able to secure an alternative source to raise A$50.33 million.

14.1.2 Provides the equity necessary to secure the Project Debt Facilities

The Convertible Loan Facility, together with the other components of the Funding Package, are required

to provide the necessary equity/mezzanine finance to secure the Project Debt Facilities, without which,

the Project Debt Facilities is unlikely to be obtained. As such, both the Funding Package and the Project

Debt Facilities are inter-dependent upon each other, making it even more important for the Funding

Package to be secured.

14.1.3 Conversion will put the Company under less cash flow strain

The Conversion under the Convertible Loan Facility may result in the issue of a maximum of 2,326,612,010

shares based on the lowest possible conversion price, at an exchange rate of US$0.9026:A$1.00, on a face

value of US$21 million. Upon the Conversion, the Convertible Loan Facility will be deemed as having been

repaid. Accordingly, the Company will not have to repay the Convertible Loan Facility in cash, which puts

the Company under less cash flow strain. Conversion of the Convertible Loan Facility is at RCF’s election.

14.1.4 Strengthens the Company’s relationship with its cornerstone investor

RCF is a private equity firm that invests in a diverse range of commodities. The primary goal of private

equity firms is to generate a return on its investment. Since private equity firms receive shares in the

companies they invest in, their return is generated by an increase in the value of those companies.

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RCF has actively participated in the Company’s capital raising through the subscription for $3 million in

new shares in July 2013 and further subscribed for $1.79 million of MZI’s $5 million equity raising in

November 2013 to increase its shareholding to the current 13.8%. RCF has become a cornerstone

shareholder in MZI, and together with the proposed Funding Package, indicates RCF’s strong financial

support for MZI and for the Keysbrook Project. The Conversion will increase RCF’s voting interest in the

Company significantly, which accordingly, is likely to increase its major shareholder support in the future.

Additionally, as RCF will only extract value from the Royalty Purchase if the Keysbrook Project is in

production, this will ensure the goals of the Company and RCF are aligned. This may also incentivise RCF,

as a cornerstone shareholder in MZI, to continue to support the Company financially throughout the

Project mine life.

14.1.5 Strengthening of the Company’s balance sheet

The Convertible Loan Facility, along with the other components of the Funding Package, are expected to

provide an additional US$42.5 million in cash to MZI, increasing the Company’s net asset position by the

same amount on a standalone basis. Increasing the equity base reduces gearing levels and allows MZI to

take on the required debt funding and strengthening the balance sheet of the Company overall.

14.1.6 Increase in market capitalisation

If the Funding Transaction is approved, MZI will significantly increase its market capitalisation. As a larger

company, there is a potential for greater broker coverage and presence in the mineral sands market.

An increase in MZI’s market capitalisation may also lead to an increase in the liquidity of MZI shares

traded on the ASX. This would be beneficial to Shareholders.

14.1.7 Increased potential for Shareholders to receive dividends

If the Funding Package is approved, MZI will have sufficient funds to develop the Keysbrook Project. The

cash that may be generated from operations at Keysbrook will increase the potential for Shareholders to

receive dividends in the future. This will provide a return to Shareholders and would also increase the

attractiveness of MZI shares to potential investors.


14.1.8 The Security Transaction is fair

The Security Transaction is fair. RG 111 states that an offer is reasonable if it is fair.

14.1.9 Supports debt funding

Notwithstanding that the Funding Package includes convertible features, the provision of security enables

the Company to obtain the debt funding that it requires. If MZI seeks alternative funding through bank

debt, it is most likely that there will be a requirement by bank lenders to request the provision of security

to secure the bank debt it seeks. Therefore, the provision of security for debt funding purposes is not

unusual.

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14.2 Disadvantages of approving the Transactions

We set out the key disadvantages that approving the Transactions are expected to bring to Shareholders:

Funding Transaction

14.2.1 The Funding Transaction is not fair

As set out in section 13.1, in our view, the Funding Transaction is not fair for Shareholders.

14.2.2 Dilution of existing shareholders

The Funding Transaction has the potential to be significantly dilutive for Shareholders and transfer greater

control to RCF following the provision of the Convertible Loan Facility and the Bridge Finance Facilities in

particular if those facilities are converted in full into MZI shares. If RCF elects to receive all principal and

interest payments in the Company’s shares, existing Shareholders’ interests would decrease from 86.2% to

approximately 26.1%. The capacity of existing Shareholders to influence the operations of the Company

will therefore be significantly reduced.

14.2.3 Loss of control

Under the Convertible Loan Facility and the Funding Package, RCF may increase its shareholding to 73.9%.

The increased voting power of RCF would put RCF in a position to exert significant influence on the

operations of the Company. At 73.9%, RCF would control the Company and will have the ability to pass and

block non-related general resolutions.

14.2.4 Royalty obligations may place cash flow risks on the Project

MZI will receive a fixed US$3.5 million upfront payment under the Royalty Purchase. However, it provides

RCF the opportunity to participate in limited (by area as defined) upside on the royalty payments that it

receives.

The Royalty Purchase imposes an ongoing cash cost to the Company, paying out 2% of gross revenue

generated from the Keysbrook Project to RCF.

As the royalty is payable on gross revenues of the Keysbrook Project, MZI has the obligation to make these

royalty payments even if its operations are not profitable. Therefore, the cash payment obligations are

not aligned with the net cash received by the Company from its Project. This may place a cash flow strain

on the Company, particularly in the event that the net inflows from the Project are lower than the

royalties payable.


14.2.5 Onerous restrictions on dealing with the Company’s assets

The provision of security by MZI to RCF under a general security deed, and common to most security

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14.3 Other considerations

14.3.1 Alternative Proposals

During 2012 and 2013, MZI undertook a comprehensive analysis of potential funding options for the

Keysbrook Project. MZI entered into discussions with a number of entities to secure financial backing for

the Keysbrook Project, and canvassed a number of options in respect of the form of the funding.

The parties that approached MZI, or were approached by MZI, included “cash box” listed entities seeking

investment in the resources sector, entities that were already operating in the resources sector seeking

corporate actions, and other entities that operate in the business of providing finance, investing or dealing

in securities.

After detailed consideration of the likely providers the MZI board have decided to focus on negotiating the

terms of a finance facility with RCF as the most realistically achievable party and in their opinion provides

the best outcome for Shareholders.

14.3.2 Practical Level of Control

Following the approval of the Funding Transaction, and in the event that RCF elects to convert the

facilities in full into the Company’s shares, RCF may hold up to approximately 73.9% of MZI’s issued capital

and existing Shareholders’ interests will decrease from 86.2% to approximately 26.1%, resulting in RCF

having control of MZI.

If the Transactions are approved, RCF has the right to appoint one director to the MZI board.

14.3.3 The Transaction is unlikely to deter a takeover offer being received in the future

Following the approval of the Funding Transaction, and if RCF elect to receive all principal and interest

payments in the Company’s shares, RCF will hold approximately 73.9% of MZI’s issued capital.

RCF is a financial investor rather than an investor who is interested in obtaining off-take or access to

synergies. RCF’s primary goal is to generate a return on its investment which we consider to be consistent

with a Shareholders’ primary goal. Therefore, although it is likely that any offer to acquire the Company

would require RCF’s acceptance, we do not consider that an increase in RCF’s investment, as a result of

approving the Transactions, will deter a takeover offer being made or accepted by the Company if an

acceptable offer is made.

14.3.4 Consequences of not approving the Transactions

Repayment of interim RCF Facility

As stated in its announcement to the market on 19 December 2013, MZI’s intention is to use the funds

from the Funding Package to repay the US$3.5 million interim finance facility from RCF which is due to be

repaid by 30 June 2014. In the event that the Funding Transaction is not approved, MZI will need to secure

an alternative source of funds in order to repay this facility. An alternative source may be at terms less

advantageous to Shareholders.

Inability to fund the Keysbrook Project into production

In the absence of being able to approve the Transactions, or any alternative funding in the short term to

fund the development of the Keysbrook Project, the Company may have to scale back the level of activity

in relation to the Keysbrook Project development.

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A financial obligation to the landowners will arise to secure an extension of time in relation to the mining

agreements and land use agreements that have been executed. There is a risk that the required

extensions may not be granted.

A delay in the commencement of development may impact on the approvals for development and impact

on key material contracts such as the GR Engineering construction contract and the BPA Port Access

Agreement.

Potential impact on MZI’s share price

We have analysed movements in MZI’s share price since the Funding Package was announced. A graph of

MZI’s share price since the announcement is set out below.

Source: Bloomberg

On the day the Funding Package was announced, the share price increased 10% and closed at $0.011. Since

the announcement, the share price has increased to a high of $0.013 and has not fallen below the closing

price on the day of the announcement. If the Transactions are not approved, the share price may fall.

15. Conclusion

We have considered the terms of the Transactions as outlined in the body of this report and have

concluded that, in the absence of a superior offer, the:

Funding Transaction is not fair but reasonable to Shareholders; and

Security Transaction is fair and reasonable to Shareholders.

We have assessed the Funding Transaction as being not fair because the value of an MZI share on a

minority basis following approval of the Funding Transaction is lower than the value of an MZI share on a

control basis prior to approval of the Funding Transaction.

We have assessed the Funding Transaction to be reasonable because we consider the advantages of

approving the Funding Transaction outweigh the disadvantages of approving the Funding Transaction.

-

9.0

18.0

27.0

36.0

45.0

54.0

63.0

0.000

0.002

0.004

0.006

0.008

0.010

0.012

0.014

Volu

me (

millions)

Share

Pri

ce (

$)

MZI share price and trading volume history

Volume Closing share price

Funding Package announced

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We have assessed the Security Transaction as being fair because value of the proceeds of the sale of the

secured assets that would be provided to RCF to secure the repayment of monies owed under the Funding

Package in the event of a default is equivalent or lower than the value of the liabilities that would be

settled.

We have assessed the Security Transaction to be reasonable because we consider the advantages of

approving the Security Transaction outweigh the disadvantages of approving the Security Transaction.

16. Sources of information

This report has been based on the following information:

Notice of Meeting dated on or about the date of this report;

Audited financial statements and Annual Reports for the financial years ended 30 June 2013 and 30

June 2012;

MZI’s reviewed financial statements for the half year ended 31 December 2013;

MZI’s quarterly cash flow report for the quarter ended 31 March 2013;

Keysbrook Project life of mine prepared by MZI;

Technical Assessment Report on the technical inputs and assumptions of the Keysbrook Project and an

independent valuation of MZI’s mineral assets as at 6 May 2014 performed by SRK;

Share registry information of MZI;

Bloomberg Data Service;

Consensus Forecasts;

Information in the public domain; and

Discussions with Directors and Management of MZI.

17. Independence

BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $70,000 (excluding GST and

reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future

use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not

receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of

this report.

BDO Corporate Finance (WA) Pty Ltd has been indemnified by MZI in respect of any claim arising from BDO

Corporate Finance (WA) Pty Ltd's reliance on information provided by MZI, including the non provision of

material information, in relation to the preparation of this report.

Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence

with respect to MZI and RCF and any of their respective associates with reference to ASIC Regulatory

Guide 112 ‘Independence of Experts’. In BDO Corporate Finance (WA) Pty Ltd’s opinion it is independent

of MZI and RCF and their respective associates.

Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had within the

past two years any professional relationship with MZI, or their associates, other than in connection with

the preparation of this report.

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A draft of this report was provided to MZI and its advisors for confirmation of the factual accuracy of its

contents. No significant changes were made to this report as a result of this review.

BDO is the brand name for the BDO International network and for each of the BDO Member firms. BDO

(Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a

UK company limited by guarantee, and forms part of the international BDO network of Independent

Member Firms. BDO in Australia, is a national association of separate entities (each of which has

appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).

18. Qualifications

BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance

advice, particularly in respect of takeovers, mergers and acquisitions.

BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian

Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX

and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam

Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of

independent expert reports, valuations and mergers and acquisitions advice across a wide range of

industries in Australia and were supported by other BDO staff.

Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of

the Institute of Chartered Accountants in Australia. He has over twenty five years’ experience working in

the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has

been responsible for over 250 public company independent expert’s reports under the Corporations Act or

ASX Listing Rules. These experts’ reports cover a wide range of industries in Australia with a focus on

companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia,

Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader

for BDO in Australia.

Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam’s career spans 15

years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the

preparation of independent expert reports and valuations in general for companies in a wide number of

industry sectors.

19. Disclaimers and consents

MZI engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert’s report under section

611 of the Corporations Act and Listing Rule 10.1 to consider if the Funding Package is fair and reasonable

for Shareholders.

BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the release of the

Notice of Meeting. Apart from such use, neither the whole nor any part of this report, nor any reference

thereto may be included in or with, or attached to any document, circular resolution, statement or letter

without the prior written consent of BDO Corporate Finance (WA) Pty Ltd.

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BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Notice of Meeting that

will be released at a future date, other than this report.

We have no reason to believe that any of the information or explanations supplied to us is false or that

material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting

as an independent expert to perform any due diligence procedures on behalf of the Company. The

Directors of the Company are responsible for conducting appropriate due diligence in relation to RCF. BDO

Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness

of the due diligence process.

The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions

prevailing at the date of this report. Such conditions can change significantly over short periods of time.

The forecasts provided to BDO Corporate Finance (WA) Pty Ltd by MZI and its advisers are based upon

assumptions about events and circumstances that have not yet occurred. Accordingly, BDO Corporate

Finance (WA) Pty Ltd cannot provide any assurance that the forecasts will be representative of results that

will actual be achieved. BDO Corporate Finance (WA) Pty Ltd disclaims any possible liability in respect of

these forecasts. We note that the forecasts provided do not include estimates as to the effect of any

future emissions trading scheme should it be introduced as it is unable to estimate the effects of such a

scheme at this time.

With respect to taxation implications it is recommended that individual Shareholders obtain their own

taxation advice, in respect of the Conversion, tailored to their own particular circumstances.

Furthermore, the advice provided in this report does not constitute legal or taxation advice to the

Shareholders of MZI, or any other party.

BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for

mineral assets held by MZI.

The independent technical specialist engaged for the mineral asset valuation, SRK, possess the

appropriate qualifications and experience in the industry to make such assessments. The approaches

adopted and assumptions made in arriving at their valuation are appropriate for this report. We have

received consent from the valuer for the use of their valuation report in the preparation of this report and

to append a copy of their report to this report.

The statements and opinions included in this report are given in good faith and in the belief that they are

not false, misleading or incomplete.

The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to

update this report for events occurring subsequent to the date of this report.

Yours faithfully

BDO CORPORATE FINANCE (WA) PTY LTD

Sherif Andrawes

Director

Adam Myers

Director

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Appendix 1 – Glossary of Terms

Reference Definition

Additional Amount The additional amount of US$1.0 million made available under the RCF Interim

Facility bearing interest at 10% per annum, payable by 30 June 2014, as well as the

Extension Fee of 3% of the existing US$3.5 million short-term loan facility, repayable

either by cash or by shares issued at 1.1 cents per share

APES 225 Accounting Professional & Ethical Standards Board professional standard APES 225

‘Valuation Services’

ASIC Australian Securities and Investments Commission

ASX Australian Securities Exchange

AUD or A$ Australian Dollars

BDO BDO Corporate Finance (WA) Pty Ltd

BPA Bunbury Port Authority

Bridge Finance Facility A 12-month bridging finance facility comprising two tranches, with Tranche A being

US$5 million provided to KLPL and Tranche B being US$13 million provided to MZI; the

Bridge Finance Facility being part of the Funding Package

CAPM Capital Asset Pricing Model

the Company MZI Resources Limited

Convertible Loan Facility A convertible loan facility of US$21 million to be provided by RCF to KLPL as part of

the Funding Package

Corporations Act The Corporations Act 2001 Cth

DCF Discounted cash flow

Doral Doral Pty Ltd or Doral Minerals Sands Pty Ltd

DuPont E.I. du Pont de Nemours and Company

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

EPC Engineering, procurement and construction

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Extension Fee Fee of 3% of the RCF Interim Facility payable for the extension of the repayment date

for the RCF Interim Facility to 30 June 2014, which is satisfied either by cash or by

shares issued at 1.1 cents per share

FME Future Maintainable Earnings

FOS Financial Ombudsman Service

FSG Financial Services guide

Funding Package Funding package of up to US$42.5 million to be provided by RCF comprising a Royalty

Purchase, a Convertible Loan Facility and Bridge Finance Facility; also referred to as

the Keysbrook Funding Package

Funding Transaction The collective transactions contemplated under the Funding Package (excluding the

Security Transaction) that require Shareholders’ approval

the Group MZI and KLPL collectively

HfO2 Hafnium oxide

HMC Heavy mineral concentrate

JORC Code The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore

Reserves

Keysbrook DCF Model Cash flow model for the Keysbrook Project prepared under the feasibility study by the

directors of MZI

Keysbrook Funding Package Funding package of up to US$42.5 million to be provided by RCF comprising a Royalty

Purchase, a Convertible Loan Facility and Bridge Finance Facility; also referred to as

the Funding Package

Keysbrook Project MZI’s Keysbrook mineral sands project in Western Australia

KLPL Keysbrook Leucoxene Pty Ltd, a wholly owned subsidiary of MZI

L70 product KLPL’s Leucoxene 70 product

L88 product KLPL’s Leucoxene 88 product

Liabilities Settled Amounts payable to RCF that would be settled by the sale of the secured assets,

including the principal amount drawn down and related interest accrued

Maximum Scenario The scenario where the maximum number of shares is issued to RCF under the Funding

Package, resulting in RCF reaching a maximum shareholding of 73.9%

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Minimum Scenario The scenario where the minimum number of shares is issued to RCF under the Funding

Package, resulting in RCF reaching a minimum shareholding of 41.7%

MSP Mineral separation plant

MZI MZI Resources Limited

NAV Net Asset Value

Notice of Meeting MZI’s notice of meeting document dated on or around the date of our Report

Pre-Transaction Value The value of an MZI share including a premium for control prior to the Funding

Transaction

Post-Transaction Value The value of an MZI share on a minority interest basis after the Funding Transaction

Project KLPL’s Keysbrook mineral sands project in Western Australia

Project Debt Facilities Senior debt funds of approximately US$64 million to be provided by RMB through a

syndication of commercial banks

QMP Quoted Market Price

Our Report This independent expert’s report prepared by BDO

RBA Reserve Bank of Australia

RCF Resource Capital Fund VI L.P.

RCF Interim Facility a US$3.5 million short-term loan facility bearing interest at 10% per annum, payable

by 30 June 2014

RCFM RCF Management L.L.C.

RCF Royalty A gross revenue royalty payable by KLPL to RCF in accordance with the Royalty

Purchase

RG74 ASIC Regulatory Guide 74 - Acquisitions approved by members (December 2011)

RG111 ASIC Regulatory Guide 111 - Content of expert reports (March 2011)

RG112 ASIC Regulatory Guide 112 - Independence of experts (March 2011)

RMB RMB Australia Holdings Limited

RMB Resources RMB Resources Limited

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Royalty Purchase A purchase of a royalty from KLPL at a purchase price of US$3.5 million in return for

the grant to RCF of a 2% gross revenue royalty over KLPL’s interest in an area that

includes the Keysbrook Project; the Royalty Purchase being part of the Funding

Package

Royalty Transaction The grant of a gross revenue royalty to RCF in accordance with the Royalty Purchase,

to be approved by Shareholders

Security Provided Proceeds of the sale of secured assets that would be provided as settlement of

amounts payable to RCF in the event of a default

Security Transaction The grant of security over all the assets of MZI and KLPL to RCF under the terms of the

Funding Package to be approved by Shareholders

Senior Debt Facility a US$50 million construction and amortising term loan with final repayment on 31

December 2018, bearing interest at a margin of 4.75% per annum above the US$ LIBOR

(London Interbank Offer Rate) pre-project completion and a margin of 4.25% per

annum post-project completion

Shareholders Non-associated shareholders of MZI

SRK SRK Consulting (Australasia) Pty Ltd

Stirling Stirling Zircon Pty Ltd and Stirling Resources Limited collectively

Stirling Royalty A 0.5% gross revenue royalty to be paid to Stirling from L70 product revenue at MZI’s

Keysbrook Project as part of a settlement agreement on its legal action against

Stirling

Sum-of-Parts A valuation methodology where a combination of different methodologies are used

together to determine an overall value

Technical Assessment Report The Technical Assessment Report prepared by SRK dated 6 May 2014

TiO2 Titanium Dioxide

tph Tonnes per hour

Transactions The Funding Transaction and the Security Transaction collectively

Tricoastal Tricoastal Minerals (Holdings) Company Ltd

USD or US$ United States Dollars

Valmin Code The Code of Technical Assessment and Valuation of Mineral and Petroleum Assets and

Securities for Independent Expert Reports.

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Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report

where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and

Valuation Procedures that a reasonable and informed third party would perform taking

into consideration all the specific facts and circumstances of the Engagement or

Assignment available to the Valuer at that time.

VWAP Volume Weighted Average Price

WACC Weighted Average Cost of Capital

ZrO2 Zirconium Dioxide

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Appendix 2 – Valuation Methodologies

Methodologies commonly used for valuing assets and businesses are as follows:

1 Net asset value (‘NAV’)

Asset based methods estimate the market value of an entity’s securities based on the realisable value of

its identifiable net assets. Asset based methods include:

Orderly realisation of assets method

Liquidation of assets method

Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that

would be distributed to entity holders, after payment of all liabilities including realisation costs and

taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation

method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity

may not be contemplated, these methods in their strictest form may not be appropriate. The net assets

on a going concern method estimates the market values of the net assets of an entity but does not take

into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash,

passive investments or projects with a limited life. All assets and liabilities of the entity are valued at

market value under this alternative and this combined market value forms the basis for the entity’s

valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on

a going concern basis. This is particularly so for exploration and mining companies where investments are

in finite life producing assets or prospective exploration areas.

These asset based methods ignore the possibility that the entity’s value could exceed the realisable value

of its assets as they do not recognise the value of intangible assets such as management, intellectual

property and goodwill. Asset based methods are appropriate when an entity is not making an adequate

return on its assets, a significant proportion of the entity’s assets are liquid or for asset holding

companies.

2 Quoted Market Price Basis (‘QMP’)

A valuation approach that can be used in conjunction with (or as a replacement for) other valuation

methods is the quoted market price of listed securities. Where there is a ready market for securities such

as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be

taken as the market value per share. Such market value includes all factors and influences that impact

upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume

trading, creating a ‘deep’ market in that security.

3 Capitalisation of future maintainable earnings (‘FME’)

This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate

which reflects business outlook, business risk, investor expectations, future growth prospects and other

entity specific factors. This approach relies on the availability and analysis of comparable market data.

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The FME approach is the most commonly applied valuation technique and is particularly applicable to

profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure

requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings

before interest and tax (‘EBIT’) or earnings before interest, tax, depreciation and amortisation

(‘EBITDA’). The capitalisation rate or ‘earnings multiple’ is adjusted to reflect which base is being used

for FME.

4 Discounted future cash flows (‘DCF’)

The DCF methodology is based on the generally approved theory that the value of an asset or business

depends on its future net cash flows, discounted to their present value at an appropriate discount rate

(often called the weighted average cost of capital). This discount rate represents an opportunity cost of

capital reflecting the expected rate of return which investors can obtain from investments having

equivalent risks.

Considerable judgement is required to estimate the future cash flows which must be able to be reliably

estimated for a sufficiently long period to make this valuation methodology appropriate.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is

also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are

in a start-up phase, or experience irregular cash flows.

5 Market Based Assessment

The market based approach seeks to arrive at a value for a business by reference to comparable

transactions involving the sale of similar businesses. This is based on the premise that companies with

similar characteristics, such as operating in similar industries, command similar values. In performing this

analysis it is important to acknowledge the differences between the comparable companies being analysed

and the company that is being valued and then to reflect these differences in the valuation.

The resource multiple is a market based approach which seeks to arrive at a value for a company by

reference to its total reported resources and to the enterprise value per tonne/lb of the reported

resources of comparable listed companies. The resource multiple represents the value placed on the

resources of comparable companies by a liquid market.

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Appendix 3 - Discount Rate Assessment

Determining the correct discount rate, or cost of capital, for a business requires the identification and

consideration of a number of factors that affect the returns and risks of a business, as well as the

application of widely accepted methodologies for determining the returns of a business.

The discount rate applied to the forecast cash flows from a business represents the financial return that

will be required before an investor would be prepared to acquire (or invest in) the business. Since the

cash flows in the Model represent cash flows to equity holders, we have discounted these cash flows using

a cost of equity.

The capital asset pricing model (‘CAPM’) is commonly used in determining the market rates of return for

equity type investments and project evaluations. CAPM provides the required return on an equity

investment.

Cost of Equity and Capital Asset Pricing Model

CAPM is based on the theory that a rational investor would price an investment so that the expected

return is equal to the risk free rate of return plus an appropriate premium for risk. CAPM assumes that

there is a positive relationship between risk and return, that is, investors are risk averse and demand a

higher return for accepting a higher level of risk.

CAPM calculates the cost of equity and is calculated as follows:

CAPM

Ke = Rf + β x (Rm – Rf)

Where:

Ke = expected equity investment return or cost of equity in nominal terms

Rf = risk free rate of return

Rm = expected market return

Rm – Rf = market risk premium

β = equity beta

The individual components of CAPM are discussed below.

Risk Free Rate (Rf)

The risk free rate is normally approximated by reference to a long term government bond with a maturity

equivalent to the timeframe over which the returns from the assets are expected to be received. We have

used the current yield to maturity on the 10-year Commonwealth Government Bond which was 4.07% per

annum as at 9 April 2014.

Market Risk Premium (Rm – Rf)

The market risk premium represents the additional return that investors expect from an investment in a

well-diversified portfolio of assets. It is common to use a historical risk premium, as expectations are not

observable in practice.

The market risk premium is derived on the basis of capital weighted average return of all members of the

S&P 200 Index minus the risk free rate which is dependent on the ten year government bond rates. For

the purpose of our report we have adopted a market risk premium of 6%.

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Equity Beta

Beta is a measure of the expected correlation of an investment’s return over and above the risk free rate,

relative to the return over and above the risk free rate of the market as a whole; a beta greater than one

implies that an investment’s return will outperform the market’s average return in a bullish market and

underperform the market’s average return in a bearish market. On the other hand, a beta less than one

implies that the business’ will underperform the market’s average return in a bullish market and

outperform the market’s average return in a bearish market.

Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained

from the linear regression of a stock’s historical data and is based on the observed relationship between

the security’s return and the returns on an index. An adjusted beta is calculated based on the assumption

that the relative risk of the past will continue into the future, and is hence derived from historical data.

It is then modified by the assumption that a stock will move towards the market over time, taking into

consideration the industry risk factors which make the operating risk of the company greater or less risky

than comparable listed companies.

It is important to note that it is not possible to compare the equity betas of different companies without

having regard to their gearing levels. Thus, a more valid analysis of betas can be achieved by ‘ungearing’

the equity beta (βa) by applying the following formula:

βa = β / (1+(D/E x (1-t))

In order to assess the appropriate equity beta for the Keysbrook Project, we have had regard to the equity

beta of MZI and of listed companies involved in similar activities in similar industry sectors. The geared

betas below have been calculated against the All Ordinaries Index. The geared betas below have been

calculated using weekly data over a two-year period.

Company

Market Capitalisation

9 April 2014

($)

Geared Beta

(β)

Gross

Debt/Equity (%)

Ungeared Beta

(βa)

MZI Resources Limited 27,234,100 0.58 10% 0.54

Company

Market Capitalisation

9 April 2014

($)

Geared

Beta

(β)

Gross

Debt/Equity

(%)

Ungeared

Beta (βa)

Producing companies

Iluka Resources Limited 4,161,883,300 1.79 16% 1.61

Sierra Rutile Limited 321,398,700 0.50 17% 0.44

Kenmare Resources Limited 396,421,500 1.24 54% 0.90

Mineral Deposits Limited 214,325,300 1.77 0% 1.77

Base Resources Limited 244,400,400 1.32 82% 0.84

Exploration companies

World Titanium Resources Limited 30,770,600 0.42 0% 0.42

Image Resources NL 23,125,600 1.12 0% 1.12

Diatreme Resources Limited 6,832,700 1.27 0% 1.27

Gunson Resources Limited 5,108,600 1.49 2% 1.47

Mean 1.21 19.05% 1.09

Median 1.27 1.93% 1.12

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Descriptions of comparable listed companies are summarised as follows.

Company Name Exchange Ticker Company description

Iluka Resources

Limited

ASX ILU Iluka Resources Limited is involved in the mining, concentration and

separation of mineral sands and titanium minerals. The Company also

produces ilmenite and other titani-ferrous concentrates, zircon, and

synthetic rutile along with the exploration of coal. Iluka's products are

exported throughout the world.

Sierra Rutile

Limited

AIM SRX Sierra Rutile Ltd. explores for and produces rutile in Sierra Leone.

Rutile is a form of titanium dioxide. The Company also produces

ilmenite and zircon concentrate.

Kenmare

Resources

Limited

LSE KMR Kenmare Resources plc explores for commercial deposits of natural

resources. The Company also develops and operates mines containing

reserves of heavy minerals, including the titanium minerals ilmenite and

rutile, as well as the high-value zircon mineral.

Mineral

Deposits

Limited

ASX MDL Mineral Deposits Limited mines and processes heavy mineral sands. The

Company is developing the Grande Cote Mineral Sands Project in

Senegal, West Africa. It's Grande Cote Mineral Sands Project is located

near the port of Dakar, Grande Cote.

Base Resources

Limited

ASX BSE Base Resources Ltd. is a resources developer, with a portfolio of assets

in Africa and Australia. The Company's primary focus is the Kwale

Mineral Sands Project in Kenya.

World Titanium

Resources

Limited

ASX WTR World Titanium Resources is developing the Tier 1 Toliara Sands Project

north of the port of Toliara in south-west Madagascar.

Image

Resources NL

ASX IMA Image Resources NL is a diversified mineral explorer with a major

landholding and an expanding mineral sands resource base in the North

Perth Basin of Western Australia as well as major mineral sands projects

in the Eucla Basin.

Diatreme

Resources

Limited

ASX DRX Diatreme Resources Limited is a diversified mineral exploration

company. The Company's current exploration activities include

Queensland, New South Wales, and South and Western Australia.

Diatreme's principal focus is on the discovery of gold, mineral sand,

diamond, and base metal deposits.

Gunson

Resources

Limited

ASX GUN Gunson Resources Limited is a mineral exploration company operating in

Australia. The Company explores for copper, cobalt and mineral sands

and its exploration projects include Mount Gunson, Coburn, and Shell

Lakes. Source: CapitalIQ

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Selected Beta (β)

In selecting an appropriate beta for the Keysbrook Project, we have considered the similarities between

the comparable companies selected above. The comparable similarities and differences noted are:

the comparable companies’ mining and exploration assets have varying risk profiles depending on

the maturity of the assets and the stages and location of production; and

several companies having been producing for a considerable time period.

Having regard to the above we consider that an appropriate ungeared beta to apply to the Keysbrook

Project is between 1.16 and 1.25. We consider the betas of the producing comparable companies to be

more applicable to MZI due to the Company completing production of Tiwi Islands in early 2013 and

planning the development of the Keysbrook Project in 2014. We consider it reasonable that a forward

looking ungeared beta for MZI will reflect that of its peers. We consider MZI’s risk profile to be slightly

higher than the other producing comparables as MZI has not yet commenced production at Keysbrook,

therefore the beta range we have selected is slightly higher than the observed average ungeared beta of

the producing companies.

The proposed capital structure for the Keysbrook Project is assumed to be 54% debt and 46% equity

following the conversion of the Convertible Loan Facility of US$21 million and the Bridging Finance

Facility of US$18 million and drawdown of the Senior Debt of US$64 million.

We consider it reasonable to assume that the shareholders of MZI determine their required rate of return,

for a particular project, by viewing the risks associated with the future cash flows of the project. We have

re-geared the project beta to 2.13 to 2.29.

Cost of Equity

We have assessed the cost of equity to be:

Input Value Adopted

Low High

Risk free rate of return 4.07% 4.07%

Equity market risk premium 6.00% 6.00%

Beta (geared) 2.13 2.29

Cost of Equity 16.83% 17.82%

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Appendix 4 – Technical Assessment Report

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Technical Assessment – Keysbrook Mineral Sands Deposit

Report Prepared for

BDO Corporate Finance (WA) Pty Ltd

Report Prepared by

SRK Consulting (Australasia) Pty Ltd

Project Number MZI001

May 2014

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HANR/STEP MZI001_Technical Assessment Report_KMSP_Rev6 6 May 2014

Technical Assessment – Keysbrook Mineral Sands Deposit

BDO Corporate Finance (WA) Pty Ltd 38 Station Street, Subiaco WA 6008

SRK Consulting (Australasia) Pty Ltd

10 Richardson Street, West Perth WA 6005

e-mail: [email protected] website: srk.com.au

Tel: +61 8 9288 2000 Fax: +61 8 9288 2001

SRK Project Number MZI001

May 2014

Compiled by Peer Reviewed by

Simon Hanrahan Principal Consulting (Mining)

Anthony Stepcich Principal Consultant (Mining)

Email: [email protected]

Authors:

S Hanrahan, A Stepcich, R Brown, D Guibal, S Duim, D Schmidt, K Fenn, T Comerford, L Esprey, S Ogier-Halim, A Lewis, C Araujo.

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Executive Summary SRK Consulting (Australasia) Pty Limited (SRK) has been commissioned by BDO (WA) Pty Ltd

(BDO) to prepare a Technical Assessment Report for the Keysbrook Minerals Sands Project (KMSP)

belonging to Keysbrook Leucoxene Pty Ltd, a wholly owned subsidiary of MZI Resources Ltd (MZI)

for inclusion in BDO’s Independent Expert’s Report (IER). The IER will be included with a notice of

meeting to assist shareholders in their decision whether or not to approve the proposed funding

package of up to US$42.5 million (M) from Resource Capital Fund VI L.P. (RCF).

MZI is developing a major leucoxene deposit at Keysbrook, located approximately 70 km south-

southeast of Perth. The land is predominantly pastoral, used for dairy and beef cattle farming, with

some pockets of degraded remnant native vegetation. The project sits within two shires, being the

Shire of Murray and the Shire of Serpentine Jarrahdale. The Mining Rights in the Keysbrook area

were granted prior to 1899 and consequently are freehold minerals to the owner (except for gold,

silver and precious metals); meaning that the minerals are owned by the private landowner and not

the State.

Summary of principal objectives

The objective of this report is to provide an independent technical assessment of the technical

project assumptions made by MZI in the cash flow models of the KMSP. These include:

Resources and reserves incorporated into the models for the Keysbrook project;

Mining physicals (including tonnes of ore mined, ore processed, recovery and grade);

Processing assumptions (including products and recovery, scheduling, mill production, refining

recovery and plant utilisation);

Operating costs (including but not limited to surface mining, underground mining, general site

costs, haulage, processing, corporate office, royalties);

Non-operating and other costs (including but not limited to reclamation, surface mining pre-

stripping, discretionary capital costs, deferred development costs);

Capital expenditure (including but not limited to sustaining capital expenditure); and

Any other relevant technical assumptions not specified above.

This technical assessment report is prepared in accordance with the ‘Code for the Technical

Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert

Report’ (VALMIN Code 2005).

Compliance

The Mineral Resources and Ore Reserve Estimates presented in this report have been reported

according to JORC 2004 standards.

Technical Assessment Review

Cash flow model assumptions

SRK has reviewed the cash flow model assumptions and finds that these inputs are suitable for use

and appropriate for the mining operation as planned. A summary of these inputs has been provided

to BDO for use in its financial modelling.

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Technical assessment

SRK has reviewed the following technical areas of the KMSP:

Geology;

Resource Estimation;

Mining;

Mineral Processing;

Tailings;

Hydrology;

Hydrogeology;

Environmental;

Operating Cost; and

Capital Cost.

Based on a review of the above technical components of the KMSP, SRK finds that the Project has

been well defined and planned for project implementation.

Landholder access and permitting is in order to enable mining to commence as required. Planning

for the construction of the wet processing and dry processing plants are well progressed with final

negotiations with a preferred engineering contractor underway for a Lump Sum installation contract

for both plants.

Table ES-1 and ES-2 present the capital and operating cost estimates. SRK considers that these

estimates are suitable for the KMSP.

Table ES-1: Project Capital Estimate

Area Total (A$M)

Construction

Keysbrook Wet Plant 36.8

Power Upgrade 4.4

Doral Dry Plant 18.3

Landowner Payments 5.2

Pre-Production Operations 5.3

Contingency 2.9

Capital – Owners (incl Growth) 5.2

Capital – Other 2.1

Pre-Production Owners Costs 7.4

Project Capital Cost 87.6

General 0.4

Pumps and Pipes 4.0

Sustaining Capital (LOM) 4.3

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Table ES-2: Project Operating Cost Estimate (escalated)

Cost Area LOM Cost (A$M)

(including escalation)

Unit cost (A$)/t product (including

escalation)

Mining 73.46 139

Wet Plant 50.32 95

Dry Plant 43.76 83

Transport 18.06 34

Administration, Landowner & Community Payments 17.39 33

Rehab and Environment 7.29 14

Mine Closure 4.75 9

Total 215.03 406

SRK considers that these costs are appropriate for the planned cost centres. In the above costs,

BDO is to calculate the Administration, Landholder Royalty & Community payments which will be

included in the OPEX. The operating cost above does not include royalties; the final operating cost

calculated by BDO will include royalties, which will depend on BDO’s commodity price assumptions

used in the IER.

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Table of Contents

Executive Summary ..................................................................................................................................... ii

Disclaimer .................................................................................................................................................... ix

List of Abbreviations ..................................................................................................................................... x

1 Introduction and Scope of Report ............................................................................... 1

2 Background and Brief .................................................................................................. 1

2.1 Background of the project ................................................................................................................... 1

2.2 Nature of the brief ............................................................................................................................... 1

3 Programme Objectives and Work Programme .......................................................... 2

3.1 Programme objectives ........................................................................................................................ 2

3.2 Purpose of the Report ......................................................................................................................... 2

3.3 Reporting Standard ............................................................................................................................. 2

3.4 Work programme ................................................................................................................................ 2

3.5 Effective date ...................................................................................................................................... 2

3.6 Project team ........................................................................................................................................ 3

3.7 Statement of SRK independence ........................................................................................................ 3

3.8 Representation .................................................................................................................................... 4

3.9 Indemnities .......................................................................................................................................... 4

3.10 Consents ............................................................................................................................................. 4

4 Project Overview .......................................................................................................... 5

4.1 Site location ......................................................................................................................................... 5

4.2 Mineralisation ...................................................................................................................................... 6

4.3 Extraction ............................................................................................................................................ 6

4.4 Processing .......................................................................................................................................... 6

5 Geology ......................................................................................................................... 8

5.1 Geology overview ................................................................................................................................ 8

5.2 Resource data acquisition ................................................................................................................... 8

5.2.1 Exploration history ................................................................................................................... 8

5.2.2 Drilling...................................................................................................................................... 9

5.2.3 Geology logging .................................................................................................................... 10

5.2.4 Field procedures .................................................................................................................... 11

5.2.5 Laboratory testing .................................................................................................................. 11

5.2.6 Assaying ................................................................................................................................ 11

5.2.7 Assemblage determination .................................................................................................... 12

5.2.8 Quality Assurance data ......................................................................................................... 12

5.2.9 Bulk density determination .................................................................................................... 14

5.2.10 Survey ................................................................................................................................... 16

5.3 Lithological and Domain interpretation.............................................................................................. 16

5.4 SRK comments ................................................................................................................................. 16

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6 Resource ..................................................................................................................... 17

6.1 Data and statistics ............................................................................................................................. 17

6.2 Variography ....................................................................................................................................... 17

6.3 Valuable heavy minerals ................................................................................................................... 17

6.4 Kriging Neighbourhood Analysis ....................................................................................................... 17

6.5 Grade Estimation and Model validation ............................................................................................ 17

6.6 Resource classification ..................................................................................................................... 18

6.7 SRK comments ................................................................................................................................. 19

7 Ore Reserves and Mining .......................................................................................... 20

7.1 Ore Reserves .................................................................................................................................... 20

7.2 Mining ................................................................................................................................................ 20

7.2.1 Mining method description .................................................................................................... 20

7.2.2 Mining sequence ................................................................................................................... 22

7.2.3 Free dig material ................................................................................................................... 22

7.2.4 Topsoil removal ..................................................................................................................... 23

7.2.5 Tailings disposal .................................................................................................................... 23

7.2.6 Production schedule .............................................................................................................. 23

7.2.7 SRK comments ..................................................................................................................... 24

8 Mineral Processing ..................................................................................................... 25

8.1 Mining Feed Unit and Wet Concentrator .......................................................................................... 25

8.1.1 Design philosophy ................................................................................................................. 25

8.1.2 Mass and Water Balances .................................................................................................... 25

8.1.3 Wet Plant Construction .......................................................................................................... 25

8.1.4 SRK comments ..................................................................................................................... 25

8.2 Doral Mineral Separation Plant (dry plant) modifications.................................................................. 26

8.2.1 Design philosophy ................................................................................................................. 26

8.2.2 Process design ...................................................................................................................... 27

8.2.3 Production capacity and recovery ......................................................................................... 27

8.2.4 Production schedule .............................................................................................................. 28

8.2.5 Construction and commissioning plans ................................................................................. 28

8.2.6 SRK comments ..................................................................................................................... 28

9 Tailings ........................................................................................................................ 29

9.1 Start-up operations............................................................................................................................ 29

9.2 Production ......................................................................................................................................... 29

9.3 TSF classification .............................................................................................................................. 29

9.4 Rehabilitation .................................................................................................................................... 29

9.5 SRK comments ................................................................................................................................. 29

10 Infrastructure .............................................................................................................. 30

10.1 Doral Dry Plant upgrade ................................................................................................................... 30

10.2 Mine surface facilities ........................................................................................................................ 30

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10.3 Logistics ............................................................................................................................................ 30

10.3.1 Product transport logistics ..................................................................................................... 30

10.3.2 Port access ............................................................................................................................ 30

10.4 Power supply ..................................................................................................................................... 31

10.4.1 Wet Plant - power supply to site ............................................................................................ 31

10.5 Water supply ..................................................................................................................................... 31

11 Hydrology .................................................................................................................... 32

11.1 Surface water management .............................................................................................................. 33

11.1.1 Flood risk ............................................................................................................................... 33

11.1.2 Surface water baseline studies ............................................................................................. 33

12 Hydrogeology ............................................................................................................. 34

12.1 Water requirements........................................................................................................................... 34

12.1.1 Water supply ......................................................................................................................... 34

12.1.2 Water recovery ...................................................................................................................... 35

12.2 Groundwater quality and quantity ..................................................................................................... 35

12.2.1 Groundwater quality .............................................................................................................. 35

12.2.2 Groundwater quantity ............................................................................................................ 35

12.3 Borehole water impact ...................................................................................................................... 36

12.3.1 Impact on aquifer system ...................................................................................................... 36

12.3.2 Impact on surrounding water system .................................................................................... 36

12.4 SRK comments ................................................................................................................................. 36

13 Environmental ............................................................................................................ 37

13.1 Environmental Approvals and Permitting .......................................................................................... 37

13.2 Environmental Compliance and Conformance ................................................................................. 38

13.3 Project Environmental aspects ......................................................................................................... 39

13.4 Social aspects ................................................................................................................................... 39

13.5 Rehabilitation and Closure Planning ................................................................................................. 40

13.6 Evaluation of Environmental and Social Risks ................................................................................. 41

13.7 SRK comments ................................................................................................................................. 41

14 Project Implementation .............................................................................................. 42

15 Operating Costs.......................................................................................................... 43

16 Capital Costs .............................................................................................................. 44

17 References .................................................................................................................. 46

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List of Tables Table 5-1: Drilling programmes ..................................................................................................................... 9

Table 5-2: Quality assurance data .............................................................................................................. 12

Table 5-3: Density data summary ............................................................................................................... 14

Table 6-1: Mineral Resource reported by Domain (above a cut-off grade of 1.00% THM and for a slimes content of less than 20%)........................................................................................................... 18

Table 7-1: Ore reserve statement for Keysbrook – 17 October 2012 ......................................................... 20

Table 7-2: Keysbrook production schedule ................................................................................................. 23

Table 13-1: Key approvals summary............................................................................................................. 37

Table 14-1: Project milestones ...................................................................................................................... 42

Table 15-1: Operating cost summary ............................................................................................................ 43

Table 16-1: Keysbrook capital expenditure ................................................................................................... 44

List of Figures Figure 4-1: Location of Keysbrook Mineral Sands Project ............................................................................. 5

Figure 4-2: Map indicating product transport route ........................................................................................ 7

Figure 5-1: Drillhole layout (as of September 2012) ..................................................................................... 10

Figure 5-2: Density sampling locations ........................................................................................................ 15

Figure 7-1: Keysbrook Mineral Sands Project .............................................................................................. 21

Figure 7-2: Keysbrook Mineral Sands Project layout – mining field unit with access ramp, receiving hopper and belt conveyor to trommel ..................................................................................................... 22

Figure 7-3: Test pit excavation ..................................................................................................................... 23

Figure 11-1: Surface drainage lines within project area ................................................................................. 32

Figure 11-2: Looking upslope from creek to where process plant will be situated ......................................... 33

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Disclaimer The opinions expressed in this Report have been based on the information supplied to SRK

Consulting (Australasia) Pty Ltd (SRK) by MZI Resources Ltd (MZI). The opinions in this Report are

provided in response to a specific request from BDO (WA) Pty Ltd (BDO) to do so. SRK has

exercised all due care in reviewing the supplied information. Whilst SRK has compared key supplied

data with expected values, the accuracy of the results and conclusions from the review are entirely

reliant on the accuracy and completeness of the supplied data. SRK does not accept responsibility

for any errors or omissions in the supplied information and does not accept any consequential

liability arising from commercial decisions or actions resulting from them. Opinions presented in this

Report apply to the site conditions and features as they existed at the time of SRK’s investigations,

and those reasonably foreseeable. These opinions do not necessarily apply to conditions and

features that may arise after the date of this Report, about which SRK had no prior knowledge nor

had the opportunity to evaluate.

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List of Abbreviations

Abbreviation Meaning

ADT articulated dumptruck

BDO BDO (WA) Pty Ltd

CD constant density

CORP Conservation and Offset Rehabilitation Plan

DIBD dry in situ bulk density

Doral Doral Mineral Sands Pty Ltd

DoW Department of Water

DMP Department of Mines and Petroleum

DTM digital terrain model

EPC Engineer Procure Construct

EPBC (Act) Environment Protection and Biodiversity Conservation Act 1999

KMSP Keysbrook Minerals Sands Project

JORC Code Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves prepared by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (JORC), December 2004.

HMC heavy mineral concentrate

HSEC Health, Safety, Environment and Community

KNA kriging neighbourhood analysis

LOM life of mine

M million

MSP mineral separation plant

MFU mining feed unit

Mt million tonnes

Mtpa million tonnes per annum

MZI MZI Resources Ltd

OK ordinary kriging

Optiro Optiro Pty Ltd

PER Public Environmental Review

RCF Resource Capital Fund VI L.P.

RMP Rehabilitation Management Plan

ROM Run of Mine

SRK SRK Consulting (Australasia) Pty Ltd

t tonne

TBE Tetra-bromo-ethane

TDS total dissolved solids

THM total heavy minerals

tpa tonnes per annum

TSF tailings storage facility

USL upper sandy layer

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Abbreviation Meaning

VALMIN VALMIN Code (code adopted by The Australasian Institute of Mining and Metallurgy (AusIMM) and the standard is binding upon all AusIMM members. The VALMIN Code incorporates the JORC Code for the reporting of Mineral Resources and Ore Reserves.

VSD variable speed drive

WAPC Western Australian Planning Commission

WCP wet concentrate plant

wmt wet metric tonne

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1 Introduction and Scope of Report SRK Consulting (Australasia) Pty Limited (SRK) has been commissioned by BDO Corporate Finance

(WA) Pty Ltd (BDO) to prepare a Technical Assessment Report for the Keysbrook Minerals Sands

Project belonging to Keysbrook Leucoxene Pty Ltd, a wholly owned subsidiary of MZI Resources Ltd

(MZI) for inclusion in BDO’s Independent Expert’s Report (IER). The IER will be included with a

notice of meeting to assist shareholders in their decision whether or not to approve the proposed

funding package of up to USD41.5 million (M) from Resource Capital Fund VI L.P. (RCF).

2 Background and Brief

2.1 Background of the project

This independent technical assessment report was initiated by Evelyn Tan, Associate Director,

Corporate Finance of BDO on 16 December 2013.

2.2 Nature of the brief

BDO has been engaged by MZI to prepare an IER for inclusion with a notice of meeting, to assist

shareholders in their decision whether or not to approve the proposed funding package of up to

USD41.5M from RCF.

MZI is developing a major leucoxene deposit at Keysbrook, located approximately 70 km south-

southeast of Perth. The land is currently predominantly pastoral, used for dairy and beef cattle

farming, with some pockets of degraded remnant native vegetation. The project sits within two

shires, being the Shire of Murray and the Shire of Serpentine Jarrahdale. The Mining Leases in the

Keysbrook area were granted prior to 1899 and consequently are freehold minerals to owner,

meaning that the minerals are owned by the private landowner and not the State.

SRK was engaged to review the technical project assumptions contained in the cash flow model and

provide BDO with a technical assessment report on the mining and geological inputs to this cash

flow model.

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3 Programme Objectives and Work Programme

3.1 Programme objectives

The objective of this report is to provide an independent technical evaluation of the technical project

assumptions made by MZI in the cash flow models of the Keysbrook Mineral Sands Project (KMSP).

3.2 Purpose of the Report

The purpose of this report is to provide an independent technical assessment for inclusion in an IER

to be prepared by BDO. The SRK report will be appended to the BDO IER and, as such, will be a

public document.

3.3 Reporting Standard

This Report has been prepared to the standard of, and is considered by SRK to be a Technical

Assessment Report under the guidelines of the VALMIN Code.

The VALMIN Code is the code adopted by The Australasian Institute of Mining and Metallurgy

(AusIMM) and the standard is binding upon all AusIMM members. The VALMIN Code incorporates

the JORC Code for the reporting of Mineral Resources and Ore Reserves.

This Report is not a Valuation Report and does not express an opinion as to the value of mineral

assets. Aspects reviewed in this Report do not include product prices and socio-political issues.

In compiling this report, SRK has used technical information as presented in previous reviews of the

KMSP. An initial review was carried out in December 2012, and a final report was published in

March 2013. Subsequently, a follow-up review to capture project updates as done in September

2013.

SRK has incorporated information from these two reports into the technical assessment report, and

also held meetings with MZI to discuss and understand further project progress. In April 2014, SRK

reviewed and updated this last report in order to include changes in the cash flow model

assumptions.

3.4 Work programme

SRK carried out the following work programme:

Review awarded: 16 December 2013

Submission of technical inputs for the financial model: 19 December 2013

Submission of the draft technical assessment report: 14 January 2014

Submission of the final technical assessment report: 22 January 2014

Submission of an updated version of the report: 23 April 2014.

3.5 Effective date

The effective date of this technical assessment report is deemed to be 23 April 2014.

The effective dates for Mineral Resource Estimate and Ore Reserve Estimate are:

Mineral Resource Estimate: 30 September 2012

Ore Reserve Estimate: 17 October 2012.

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Note: MZI published a Mineral Resource update in February 2013. SRK’s original review was based

on the Mineral Resource as stated in September 2012. All comments are on this basis. While the

February 2013 Mineral Resource statement has a material upgrade (by some 30 Mt), this has not

had an impact on the Ore Reserve that the project mine plan is based on (i.e. the September 2012

Resource model).

3.6 Project team

Simon Hanrahan, Principal Consultant (Mining) has compiled this technical assessment report based

on previous reviews and subsequent technical reports authored by the following personnel:

Anthony Stepcich Principal Consultant (Project Evaluations)

Rodney Brown Principal Consultant (Geology)

Daniel Guibal Principal Consultant (Resources)

Sjoerd Duim Principal Consultant (Mining)

David Schmidt Principal Consultant (Metallurgy)

Keith Fenn Principal Consultant (Tailings)

Tony Comerford Principal Consultant (Infrastructure)

Luke Esprey Principal Consultant (Hydrology)

Sylvie Ogier-Halim Principal Consultant (Hydrogeology)

Andrew Lewis Principal Consultant (Environmental).

This report has been prepared by consulting with the original reviewers as required, particularly

where updated project material has been provided.

SRK has carried out a site visit and has completed previous reviews in December 2012 and

September 2013 on behalf of potential financiers.

3.7 Statement of SRK independence

Neither SRK nor any of the authors of this Report have any material present or contingent interest in

the outcome of this Report, nor do they have any pecuniary or other interest that could be

reasonably regarded as being capable of affecting their independence or that of SRK.

SRK has no beneficial interest in the outcome of the technical assessment being capable of affecting

its independence.

SRK’s fee for completing this Report is based on its normal professional daily rates plus

reimbursement of incidental expenses. The payment of that professional fee is not contingent upon

the outcome of the Report.

Pursuant to Clause 26 of the VALMIN Code (2005):

Fees, or the provision of further work to the Expert or Specialists must not be dependent on:

the outcome of the Technical Assessment/Valuation; or

the success or failure of the transaction for which the Independent Expert Report was required.

SRK has charged a professional fee of A$35,000 for the preparation of this Technical Assessment

Report. BDO has confirmed that the requirements of Clause 26 will be complied with.

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3.8 Representation

BDO has represented in writing to SRK that full disclosure has been made of all material information

and that, to the best of its knowledge and understanding, such information is complete, accurate and

true.

3.9 Indemnities

As recommended by the VALMIN Code, BDO has provided SRK with an indemnity under which SRK

is to be compensated for any liability and / or any additional work or expenditure resulting from any

additional work required:

Resulting from SRK’s reliance on information provided by the Commissioning Entity that is

materially inaccurate or incomplete. (Such an indemnity does not absolve Experts and

Specialists from critically examining the information provided); or

Relating to any consequential extension of workload through queries, questions or public

hearings arising from the Report.

3.10 Consents

SRK consents to this Report being included, in full, in the BDO independent experts report in the

form and context in which the technical assessment is provided, and not for any other purpose.

SRK provides this consent on the basis that the technical assessments expressed in the Summary

and in the individual sections of this Report are considered with, and not independently of, the

information set out in the complete Report.

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4 Project Overview

4.1 Site location

MZI Resources Ltd is developing a major leucoxene deposit at Keysbrook, located approximately

70 km south-southeast of Perth (Figure 4-1).

Figure 4-1: Location of Keysbrook Mineral Sands Project

The land is currently predominantly pastoral, used for dairy and beef cattle farming, with some

pockets of degraded remnant native vegetation. The project sits within two shires, being the Shire of

Murray and the Shire of Serpentine Jarrahdale. The Mining Rights in the Keysbrook area were

granted prior to 1899 and consequently are freehold minerals to owner, meaning that the minerals

are owned by the private landowner and not the State.

SRK undertook a site visit to the KMSP in December 2012.

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4.2 Mineralisation

Mineral sands deposits are often formed along coastlines where the heavier minerals have been

concentrated by wave and wind processes. Most mineral sand deposits are found in unconsolidated

fossil shorelines, which can be significant distances from the present coastline. The valuable

components of mineral sands have high specific gravities, and tend to lag in ocean currents whereas

lighter components, such as quartz and feldspar, are carried offshore or along shore by strong littoral

drift. Repeated winnowing and reworking over centuries or millennia may progressively enrich a

mineral sand deposit. Over longer periods, changing sea levels may cause the shorelines to migrate

inland (marine transgression), reworking earlier accumulations into larger deposits, or to migrate

seaward (marine regression) leaving reworked deposits preserved inland.

The Keysbrook mineralisation is hosted within a degraded dune system. There is minimal

overburden, and the deposit contains low levels of clay and oversize material. The Keysbrook

deposit is characterised by its high leucoxene content and, when in operation, is expected to be one

of the world’s largest producers of the premium Leucoxene 88 (comprising 88% titanium dioxide)

product.

4.3 Extraction

The KMSP will involve the development of a 4.5 million dry tonnes-per-year sand mining operation.

A truck-and-excavator mining method has been selected for the project, with the production fleet

working within a radial distance of a semi-portable mining feed unit (MFU) which screens and

slurries ore back to the processing plant. This method is simple and cost effective given the

flexibility of a mobile fleet, the relatively short haul distances achievable with the MFU strategy, and

the lateral extent of the shallow orebody. The ability to relocate the MFU enables the Company to

mine to an effective production limit for the production fleet, without long distance hauls (as the MFU

can be moved closer to the advancing mining face).

The orebody is relatively thin, at a depth averaging between 2 m and 5 m depending on dunal

variations. The deposit is approximately 1,406 hectares (ha) in area and has an unusual heavy

mineral suite compared to other titanium and zircon operations in the south west of Western

Australia. The primary orebody is at surface and averages 2.2 m in thickness across a total mining

area of approximately 12 km².

4.4 Processing

A wet concentration plant (WCP) located on site will process the ore using gravity separation to

produce, on average, approximately 120,000 tonnes (dry, steady state) of heavy mineral concentrate

(HMC) per year grading 85% heavy minerals. The Company has entered into a processing

agreement with Doral Mineral Sands Pty Ltd (Doral) whereby the Keysbrook HMC will be transported

by road via the South West Highway and treated through Doral’s dry mineral separation plant (MSP)

located in Picton (Figure 4-2) approximately 130 km south of the mine site.

Under the arrangements, the MSP will alternate between treating Keysbrook HMC and HMC

produced by other mineral sands operations on a ‘month-on, month-off’ basis.

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The MSP will use electrostatic and magnetic separation techniques to separate the leucoxene

products from the HMC, with the remaining material containing the zircon being treated through a

further wet separation plant to produce a zircon concentrate and minor tails (which will be returned to

the Keysbrook site for blending with the WCP tails). Under the toll treating arrangements with Doral,

the Company will undertake capital upgrades to the MSP in order to ensure the plant is able to

process the Keysbrook HMC and produce the final products at the required specification.

The toll treating process will produce three products; Leucoxene 70 - L70 - containing 70% titanium

dioxide, Leucoxene 88 - L88 - containing 88% titanium dioxide and a zircon concentrate - 56%

zircon, 3% L70 and 11% L88.

Figure 4-2: Map indicating product transport route

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5 Geology

5.1 Geology overview

The Keysbrook mineral sand deposits are located on the Swan Coastal Plain approximately 50 km

south-east of Perth, and several kilometres west of the Darling Scarp. HMCs have been discovered

in the Bassendean Sands Formation (also referred to as the Bassendean Dune system), which is

thought to have formed as a shoreline dune system approximately 800,000 years ago. The drill

coverage in the project area extends for approximately 9 km north-south and 5 km east–west.

A schematic representation of the drilling coverage is presented in Figure 5-1.

The Bassendean Dune system is thought to have originally consisted of a series of parabolic dunes,

each covering an area of tens of hectares. The system has since become degraded, with dune

material now filling the swales such that there is now little topographic relief evident in the region.

The elevation difference over the project area is less than 25 m, which is mostly due to a regional

gradient (~0.2°) to the west-southwest.

Apart from a humus-rich overburden material that rarely exceeds a depth of 20 cm, the silica-rich

Bassendean Sands represent the surficial material in the project area, ranging in thickness from

0.5 m to approximately 6 m. The average depth to the base of mineralisation defined by MZI is

approximately 2.5 m. MZI has identified two stratigraphic units of interest in the Bassendean Sands;

an upper sandy layer (USL) and a slimes-rich lower layer. The contact between the two is

gradational, with an increase in slimes and oversize content with depth. The earlier drilling

programmes targeted the USL, and most of the holes were terminated when an increase in slimes or

oversize was observed. For the more recent programmes, the drilling was extended into the high

slimes layer when it was realised that this material could also contain elevated thermo-hydraulic-

mechanical (THM) concentrations.

The Bassendean Sands overlie the Guildford Formation, which is thought to be the local equivalent

of the Yoganup Formation (the Yoganup Formation hosts many of the ilmenite deposits that are

further to the south). A thin pisolitic ferruginous clay layer has been observed in some of the

drillholes. MZI advised that this is very thin (typically a few centimetres thick) and of limited

persistence. There are some reports that a thicker ferruginous layer, locally known as ‘coffee-rock’,

has been encountered in some drillholes. Optiro Pty Ltd (Optiro) advised that the drillhole would

have been terminated if coffee rock was encountered.

The average THM concentration is approximately 2.6%. The valuable minerals in the THM are

leucoxene (~75%) and zircon (~15%). The magnetite concentration is approximately 0.5%. Only

limited work has been conducted on determining the regional makeup of the heavy trash mineral

suite, but it is understood to be predominantly staurolite, goethite, and tourmaline. MZI advised that

minor amounts of monazite (which can contain thorium) have been identified.

5.2 Resource data acquisition

5.2.1 Exploration history

MZI (initially operating under the name of Olympia Resources) commenced reconnaissance drilling

in the Keysbrook area in 2003. The initial drilling targeted the underlying Guildford Formation.

Although the Guildford Formation did not turn out to be prospective, MZI identified significant

quantities of leucoxene and zircon in the overlying Bassendean Sand. MZI subsequently conducted

a number of drilling programmes aimed at delineating resources in this unit. A summary of the

drilling quantities available for the resource estimates described in this report (September 2012) is

presented in Table 5-1.

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Table 5-1: Drilling programmes

Programme Drillholes Drill metres (m)

June 2003 59 951

March 2004 275 750.3

August 2004 1543 3,270.5

June 2006 9 27

December 2007 137 786.0

April 2008 44 170

July 2010 21 56.9

July 2012 180 887.1

Total 2,268 6,898.8

Source: Optiro 2012

5.2.2 Drilling

Optiro reports that, with the exception of 21 hand auger holes drilled in 2010, all sampling has been

conducted using aircore drilling equipment. The aircore drilling was conducted by four different

companies using different aircore rigs. It is understood that all rigs were fitted with HQ coring

equipment. Sampling was nominally conducted on 1 m intervals, although this is quite variable for

the earlier programmes. The rigs were fitted with rotary splitters mounted to the cyclone underflow.

The splitters were set to take a 1:4 split. For a 1 m interval, this equates to a split mass of

approximately 2.5 kg.

The auger drilling was conducted in February 2010, specifically to collect material for heavy mineral

assemblage testing. The programme is described in Coxhell (2010). The auger samples represent

less than 1% of the assay dataset, but almost 40% of the assemblage dataset.

A schematic representation of the drillhole locations is presented in Figure 5-1. The spacing is

irregular over the project area, but the nominal spacing is approximately 50 m along section, and

200 m between sections. As discussed in Section 6, this spacing is thought to be adequate for

resource delineation.

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Figure 5-1: Drillhole layout (as of September 2012)

5.2.3 Geology logging

For each interval, a geological log was prepared for material collected from the drill cuttings.

Geology information was recorded onto logging sheets, entered into Field Marshall, and then

exported to the database. For the 2012 programme, the logs were entered directly into a Trimble

Recon recorder. The logs include information on lithology, colour, sample quality, and HM and

gangue particle characteristics.

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Material from each interval was panned, and if the HM concentration was estimated to exceed 1%,

the sample was submitted for laboratory testing. Samples that were not tested were assigned a

default THM grade of 0.1%. The % Slimes and % OS (oversize) were left as ‘absent’. Optiro

advised that the 1% criterion was applied in a very conservative manner for the 2012 programme,

and the majority of the samples were submitted for assaying.

The logging procedures are considered to be adequate for resource estimation, although the

selective assaying practices are likely to result in a conservative resource estimate, especially given

that the resource reporting cut-off is also 1% THM.

5.2.4 Field procedures

Detailed descriptions of the field activities are only available for the 2012 programme (Digirock

2012), but MZI and Optiro advised that similar procedures were used for the earlier programmes.

The 2012 programme was conducted by Digirock under the supervision of Optiro.

The field activities included geological logging of each interval, wet panning to identify which

intervals would be submitted for laboratory testing, and the collection of 350-550 g sub-samples for

laboratory submission. The field splits were taken using a rig-mounted rotary splitter or a riffle

splitter. A field duplicate was collected at a frequency of 1 in 20 for the rotary and riffle split samples.

Although the procedures described above are considered appropriate for the Keysbrook deposit,

Digirock reports that it was not possible to use the rotary or riffle splitter if the samples were very

wet. Instead, spear sampling or hand scooping was used to collect field splits, and duplicate

samples were not collected. These methods are not considered to be reliable, and the lack of

duplicates meant that the impact on grade could not be quantified. In 2013, MZI conducted a

confirmatory sampling programme to address some of the quality concerns with the earlier

programmes. This is described in Section 5.2.8.

5.2.5 Laboratory testing

For resource estimation purposes, the testing of mineral sands samples is usually performed as two

separate laboratory activities, often referred to as assay determination and assemblage

determination. The assaying component entails estimating the Slimes, Sand, and Oversize fractions

of the sample, and the THM (total heavy mineral) grade of the Sand fraction. The assemblage

determination component entails estimating the mineral composition of the THM.

5.2.6 Assaying

Since project inception, three different laboratories applying five different sets of analytical

procedures have been used for assaying. All laboratories have followed a conventional industry

approach of attrition to break up consolidated material, screening to determine the slimes, sand, and

oversize fractions, and heavy media separation (all using Tetra-bromo-ethane (TBE)) to determine

the heavy mineral content of the sand. However, there have been some differences in the following:

Attrition method (jaw crushing, kneading, slaking);

Screen sizes used to define the various size fractions; and

Reporting of THM and the size fractions (as a % of full sample or as a % of a particular fraction).

These differences have resulted in some data being excluded from resource estimation (2003 data),

and the application of adjustment factors in an attempt to minimise biases between the various

datasets.

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5.2.7 Assemblage determination

The assemblage dataset comprises mineralogy determinations conducted on 15 HMC composites

from the 2010 programme and 25 composites from the 2012 programme. Each composite

represents the mineralised horizon in a particular drillhole. The 2010 composites were confined to

the USL. Two of the 2012 composite were taken from the USL; five were taken from the slimes-rich

layer, and the remainder from composites spanning both layers. The composite lengths range from

0.9 to 6.0 m, with the average length being 3.1 m. The hole locations are presented in Figure 5-1.

A Carpco separator was used to fractionate the HMC based on magnetic susceptibility, and then

XRF and grain counting were used to estimate the quantity of selected minerals in each fraction.

The database contains estimates for Magnetite, Leucoxene 70, Leucoxene 88, Zircon, and “Other”.

The “Other” field contains the combined estimates for the heavy trash minerals, with totals ranging

from 3 to 22%, and averaging 10%. It is understood to be predominantly staurolite, goethite, and

tourmaline.

SRK considers that the dataset is too small to enable the reliable estimation of local mineral

concentrations. The dataset indicates that the total leucoxene grade does not show significant

variability, and is considered sufficiently accurate for global estimates. The L70:L88 ratio is quite

variable. In order to assess the impact of this on project economics, conducted financial sensitivity

analysis was conducted, which indicated that even if the average L88 concentration was 20% (rel.)

less than expected, the reductions in Life of Mine (LOM) revenue and operating margin would not be

significant. In 2013, additional assemblage testing was performed. These results were not available

for use in the September 2012 resource model, but they do indicate that it is unlikely that the L88

grades are biased high. This is described in more detail in Section 5.2.8.

5.2.8 Quality Assurance data

Table 5-2 presents a summary of the quality assurance (QA) data that were collected during the

exploration programmes (2004-2012).

Table 5-2: Quality assurance data

QA Procedure Quantity Comment

Laboratory Duplicates 253 (5%) Essentially all from 2004

Field Duplicates 33 (0.7%) All from 2012 (4% of the 2012 samples)

External Duplicates 41 (0.9%) 2004 (0.70%), 2006 (95%)

Twinned Holes – 2012 vs 2012 Not stated These were all drilled in 2012

Twinned holes – 2012 vs 2004 35 holes (est.) 2004 holes twinned with 2012 holes

Although an assessment of the quality assurance datasets did not identify significant data quality

issues, there were insufficient data to demonstrate that the routine data were sufficiently accurate

and precise for resource estimation. The main shortcomings with the QA datasets were the

following:

Lack of data to confirm that biases were not introduced by the aircore sampling process;

Concerns over the usefulness of the field duplicate dataset given that duplicates were only

collected for samples that were deemed easy to split;

Limited independent laboratory testing; and

Limited QA data for the assemblage datasets.

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To address these issues, MZI conducted a confirmatory drilling programme in 2013. This entailed

the twin drilling of 124 holes (representing 5% of the original drilling) over the project area.

The drilling was performed using push-probe equipment, which when correctly applied, can result in

minimal material disturbance during sampling. Where possible, the sampling intervals for each

re-drilled hole were matched to those of the original hole. A total of 389 samples were collected for

comparison.

The 2013 drill programme also included a number of QA procedures such that the reliability of the

data and its suitability as a comparative dataset could be assessed. These included twinned holes,

field duplicates, laboratory duplicates, standards and blanks. These data showed no evidence of

significant bias or precision issues.

As shown in Table 5-1, approximately 80% of the data available for resource estimation was

acquired in 2004, with 8% in 2012, and the remaining 12% acquired in years 2006, 2007, 2008, and

2010 (the 2003 data were not use for resource estimation). For this reason, the confirmatory drilling

primarily targeted the 2004 and 2012 programmes. Based on comparisons of the paired 2004 vs

2013 and 2012 vs 2013 datasets, SRK concluded the following:

For THM, some conditional biases are evident, but the differences are not large. In general,

compared to the 2013 dataset, the 2004 dataset slightly under-reports the THM grade by

approximately 5% relative. The 2012 and 2013 datasets report the same average grade, but the

2013 data are slightly higher in lower grade range and lower in the higher grade range.

For Slimes, the 2004 and 2013 datasets have similar means, although a conditional bias is

evident, with the 2004 dataset reporting lower Slimes below 10% and higher slimes above 10%.

The 2012 Slimes dataset is biased high compared to the 2013 dataset, with a relative difference

of approximately 17%. There is some indication that the 2012 samples with elevated Slimes

report slightly lower THM grades.

The 2013 data were acquired using different drilling methods and were tested by different

laboratories compared to those used for the 2004 and 2012 programmes. Therefore, it is

reasonable and consistent with industry practices to conclude that the similarities in assay grades

indicate that significant errors are not present, and that the assay data are sufficiently reliable for

resource estimation.

As part of the 2013 confirmatory drilling programme, assemblage determinations were performed on

21 composites prepared from 729 sink samples sourced from within the 5-year mining area.

Because only a limited amount of assemblage testing had been performed on samples collected

prior to 2013, and the 2013 composite were prepared by combining samples from numerous holes, it

was not possible to conduct a paired sample comparison, as was performed for the assay data.

Instead, the regional averages for the datasets were compared. The datasets report similar total

leucoxene grades, but the 2013 dataset reports an average L88 grade that is 15% (relative) higher

than the average L88 grade for the original dataset. Without production reconciliation data, or

extensive additional testing, it is not possible to determine which dataset may be the more accurate,

but it does indicate that resource model L88 grades are unlikely to be over-estimated.

When considered in conjunction with the sensitivity studies conducted (Section 5.2.5), the

assemblage datasets are considered to be suitable for resource estimation.

The 2013 confirmatory drilling results were not available for inclusion in the September 2012

resource model. However, the data demonstrate that the classifications assigned to the resource

estimates are appropriate.

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5.2.9 Bulk density determination

In 2006, a total of 18 in situ dry bulk density readings were taken at seven locations within the project

area. The testing was performed by Western Geotechnics using a Troxler nuclear densometer.

At each location, the tests were conducted at 1 m intervals down to the water table. The sample

locations are presented in Figure 5-2 (labelled as 2006).

In 2013, a total of 73 samples were collected from 15 test pits excavated within the project area.

At each location, samples were collected at 0.3 m intervals from the surface to the base of the pit,

which usually coincided with the water table. The samples were collected by inserting a 140 mm

tube horizontally into the pit wall. The tube volume and the dry weight of the sample were used to

estimate the dry in situ bulk density (DIBD). The sampling locations are presented in Figure 5-2

(labelled 2013b). The samples labelled as 2013a were collected from test pits along access roads

and in the vicinity of plant site. They have not been used because they are not considered to be

representative of the resource area.

A summary of the density results for the two programmes is presented in Table 5-3. A correlation of

density with THM grade is not evident, which is not unexpected given the relatively low average THM

grade. The 2013 density data show some correlation with depth; however, this is not clearly defined

because the majority of the samples were collected within 1 m of the surface, and there are relatively

few deep samples.

A bulk density of 1.6 t/m3 has been used for resource estimation, which represents an increase of

less than 2% compared to the dataset averages of of 1.61 and 1.57 t/m3

for the 2006 and 2013

datasets respectively. It is possible that the dataset averages are slightly low because it is over-

represented in samples collected from the upper half of the deposit profile.

Table 5-3: Density data summary

Parameter 2006 2013

Test method Nuclear Densometer Volume and weight measure

Number of tests 18 73

Average DIBD 1.61 1.57

Minimum 1.49 1.40

Maximum 1.77 1.80

Std Dev 0.08 0.09

Average depth (m) 1.5 0.9

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Figure 5-2: Density sampling locations

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5.2.10 Survey

The survey data provided for Keysbrook are expressed in GDA94 coordinates.

The topographic survey data were acquired from a LiDAR survey conducted in August 2012.

The data were provided on 5 m-spaced nodes and as 0.5 m contours. A digital terrain model (DTM)

from the contour data was prepared. For validation purposes, DTMs were also derived from the

node data in selected areas. Significant differences between contour and node DTMs were not

observed.

The drillhole collar coordinates were surveyed by the site geologist using a handheld GPS.

The collar points were then adjusted vertically to match laterally coincident points on the topographic

surface.

5.3 Lithological and Domain interpretation

For estimation control, Optiro defined a base of mineralisation using a nominal cut-off grade of 1%

THM. For drillholes where all of the samples reported THM grades of at least 1%, the boundary was

placed at or below the base of the hole (depending upon the position of the contact in nearby holes).

The material above the 1% THM surface was separated into two domains based on particle size

criteria. Domain 1 is the USL that reports a slimes content of less than 20% and an oversize content

of less than 15%. Domain 2 contains the underlying high slimes and / or high OS material.

This contact surface was used as a hard boundary constraint during estimation.

A third surface was created by linking the base of the lowest sample in each drillhole. This surface

was used for resource classification.

Optiro advised that the boundaries of the original dunes were not sufficiently well defined to enable

possible in situ and remobilised material to be separately modelled. The ferricrete layer is thin and

of limited persistence, and has not been defined in the geology model.

Based on the fieldwork performed by MZI, it is understood that the heavy minerals are disseminated

throughout the Bassendean Sands (i.e. they do not appear to occur in defined bands within the sand

unit), and the clay content exhibits a gradational increase with depth. In the absence of any

distinguishing lithological features, the grade based approach to domaining is considered suitable for

resource estimation.

5.4 SRK comments

SRK considers that the data acquisition activities for Keysbrook have generally been performed in an

appropriate way, applying techniques that are widely used and considered suitable for mineral sands

deposits. There were a number of shortcomings with the QA programmes that were conducted

between 2004 and 2012, which meant that the reliability of the resource estimation datasets could

not be properly assessed. However, the data collected during the 2013 confirmatory drill programme

indicates that significant biases or precision issues are unlikely. The resource model assemblage

and density estimates are based on a limited amount of data. However, the additional density and

assemblage data collected during the 2013 programme indicates that the global and regional

estimates are considered reliable.

SRK considers that the quality and quantity of data is adequate for the preparation of resource

models that will be used to support medium and long term mine planning studies. As is common

practice with other mining projects, the issues associated with local grade uncertainty can be

addressed by grade control drilling as the project develops. SRK considers that the quality and

quantity of data is consistent with the resource classifications that have been assigned to the

estimates.

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6 Resource SRK has carried out a review of the resource estimate as created in 2012 by Optiro and documented

in Optiro, 2012.

It should be noted that MZI published a Mineral Resource update in February 2013. SRK’s original

review was based on the Mineral Resource as stated in September 2012. All comments are on this

basis. While the February 2013 Mineral Resource statement has a material upgrade (by some

30 Mt), this has not impacted the Ore Reserve that the project mine plan is based on (i.e. the

September 2012 Resource model).

6.1 Data and statistics

Two grade based domains are used for the estimation:

1 Domain 1 (D1) is the USL, which reports a slimes content of less than 20% and an oversize

content of less than 15%.

2 Domain 2 (D2) contains the underlying high slimes and /or high OS material.

6.2 Variography

The variography procedure is straightforward, with variograms calculated in the horizontal plane and

vertically.

The approach to the variography is reasonable, as the deposit is very thin. Fairly large ranges are

observed for the horizontal variograms, suggesting that the current drill spacing (50 m x 200 m) is

adequate for resource estimation.

6.3 Valuable heavy minerals

Heavy mineral separation was carried out on 40 HMC samples. Optiro performed a detailed

statistical analysis of the 40 data, which are reasonably well distributed over the orebody. The ratio

L88:L70 is higher in D1 than in D2.

The number of data is insufficient to get a precise estimation of the variables; Magnetite, L70, L88

and Zircon. The level of risk implied in the estimation of the valuable heavy minerals is higher than

the risk involved in the estimation of THM, oversize and slimes.

6.4 Kriging Neighbourhood Analysis

Prior to local estimation by kriging, Optiro performed a comprehensive kriging neighbourhood

analysis (KNA) to define the optimum kriging parameters (block size, number of samples to use in

the neighbourhood, block discretisation).

As a result, a block model with parent cell 25 m x 50 m x 1 m is retained, with minimum and

maximum number of samples equal to 10 and 32 respectively.

6.5 Grade Estimation and Model validation

Following the KNA, ordinary kriging (OK) of the parent cells of the model is performed per domain in

three passes with increasing search neighbourhood radii. Most of the blocks (over 90%) were

estimated in the first pass. Magnetite, L70, L88 and Zircon are estimated by nearest neighbour

technique, as the number of data is low and there is no correlation between THM and these

variables.

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Dry density is set to a constant value of 1.6 t/m3, which is the approximate average value of existing

measurements.

Optiro validated the block model for THM, slimes and oversize using four methods:

1 Visual comparison of drillhole and block values (cross-sections, long-sections and plan views).

2 Comparison of mean input grades with mean estimated block grades (statistical analysis).

3 Construction of swath plots by Easting, Northing and RL comparing input grades with block

grades.

4 Re-estimation by Inverse Distance cubed (ID3) and comparison with OK results.

The results of the validation indicate a good to very good agreement between input data and

estimated block grades for D1. The ID3 global resources in THM are within 0.5% of the OK

estimates.

The approach used by Optiro is valid; however, the quality of the estimation of the Magnetite, L70,

L88 and Zircon variables is not very high as there is limited data available. SRK considers that the

dataset is too small to enable the reliable estimation of local mineral concentrations.

The validation programme is good. It is clear that there is more variability in D2 than in D1, where

the agreement between data and block estimates is poorer.

6.6 Resource classification

The resource classification carried out by Optiro is based on, “confidence in geological and grade

continuity using the drilling density, geological model, modelled grade continuity and conditional bias

measures (kriging efficiency)”.

The majority of the resource is classified as Measured. Indicated resources are confined to the

lateral and vertical limits, as well as the blocks where the estimation was dominated by August 2004

samples (Western Geochem Lab). The THM values for these samples were expressed as a

percentage of -3.3 mm material, and subsequently adjusted to in situ grades.

A classification of Inferred has been applied to the blocks extrapolated below the base of drilling.

The final classified resources as reported (30 September 2012) by Optiro within the Mining Rights,

and excluding creek buffer zones and remnant bush areas are detailed in Table 6-1.

Table 6-1: Mineral Resource reported by Domain (above a cut-off grade of 1.00% THM and for a slimes content of less than 20%)

Classification Million tonnes

THM %

Slimes %

Percentage contained within THM

Magnetite L70 L88 Zircon

Measured 34.1 2.59 8.7 0.43 28.7 46.0 14.3

Indicated 6.9 2.34 8.9 0.39 28.4 46.4 14.7

Inferred 8.1 2.74 11.1 0.30 27.0 47.3 14.1

Total 49.1 2.58 9.1 0.40 28.4 46.3 14.3

The Mineral Resource contains an estimated 5.3% of oversize material, and over 90% of the

resource occurs in the USL.

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6.7 SRK comments

The grades (THM, slimes, and oversize) for a resource estimate are very well estimated. The drilling

coverage and drill spacing are sufficient to support a Measured Resource classification for most of

the orebody. However, it should be noted that the valuable heavy mineral elements (L70, L88 and

Zircon), which form part of the reported resources, are not well estimated because of the limited

amount of data. However, as discussed in Section 5.2.5, financial modelling has demonstrated that

project economics are still robust. MZI has subsequently collected additional assemblage data

which will be used in future Mineral Resource updates to further refine assemblage grades.

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7 Ore Reserves and Mining

7.1 Ore Reserves

Optiro Pty Ltd (Optiro) prepared the Ore Reserves under the JORC Code 2004 for MZI.

Ore Reserves were based on the following:

A minimum cut-off grade of 1% Total Heavy Minerals (THM);

An upper cut-off grade of 20% slimes;

Minimum thickness of 0.5 m;

A Leucoxene 70 (L70) price of US$352 per tonne;

A Leucoxene 88 (L88) price of US$1,166 per tonne;

A Zircon (Zr) price of US$1,777 per tonne;

Standoff distance of 20 m from any public roads;

Exclusion of a 25 ha conservation area; and

Exclusion of Lots where landholder agreements were pending.

The Ore Reserve statement as of 17 October 2012 is presented in Table 7-1.

Table 7-1: Ore reserve statement for Keysbrook – 17 October 2012

Ore Reserve Ore In situ THM

Grade%

THM Assemblage

Classification Tonnes Million

THM tonnes Magnetite

% L70 %

L88 %

Zircon %

Other %

Proved 23.0 610,000 2.7 0.26 27.8 46.6 14.6 10.8

Probable 2.8 68,000 2.5 0.26 27.4 46.5 15.0 10.8

Total 26.0 670,000 2.6 0.26 27.8 46.6 14.6 10.8

Note: L70 and L88 in the THM assemblage equates to the two Leucoxene products containing 70% TiO2 and 88% TiO2.

7.2 Mining

7.2.1 Mining method description

MZI plans to mine the KMSP by a conventional dry sand mining method, using a backhoe excavator

and articulated dumptruck (ADT) fleet. Mined material will be delivered by the ADT to the receiving

hopper of the Mining Field Unit (MFU), from where the mined material will be screened at 2.5 mm

and slurried to the WCP, located on Lot 62, in the southwest of the KMSP area.

Figure 7-1 shows the indicative KMSP layout with the MFU and the WCP. Figure 7-2 shows the

MFU with the access ramp and receiving hopper.

MZI plans to operate as an owner-operator for mining.

The MFU is mobile (on skids) and will be re-located as required. Slurry lines will be laid out in

preparation for any MFU move. The creation of new MFU access ramps can largely be done prior to

moving the MFU in place (leaving a slot for the MFU to move into), thus reducing the MFU relocation

delay.

The MFU is expected to work well, provided that the trommel screen is of adequate capacity and that

the trash screen to remove wood, other oversize and organic matter is of adequate capacity.

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Figure 7-1: Keysbrook Mineral Sands Project

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Figure 7-2: Keysbrook Mineral Sands Project layout – mining field unit with access ramp, receiving hopper and belt conveyor to trommel

7.2.2 Mining sequence

Landowner agreements accommodate the planned mining sequence.

Initial mining will take place (Pre-production) and will involve establishing an initial excavated pit that

will then serve as a void for waste material to be backfilled. The initially mined ore will be stockpiled

for treatment in the processing plant.

7.2.3 Free dig material

During the site visit, MZI demonstrated a test pit (Figure 7-3) excavation in the unconsolidated sands

of the KMSP to allow the inspection of the free dig nature of the mineral sands. The final depth of

the test pit at the specific location was around 3.5 m to 4.0 m below topography, at which point the

limit of the excavator had been reached and the underlying horizon with higher slimes and more

competent clay material was encountered, making it difficult to excavate any of this material at

depth.

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Figure 7-3: Test pit excavation

7.2.4 Topsoil removal

Based on the site visit and the test pit area excavated during the SRK site visit, it would appear that

the topsoil thickness is very limited. SRK does not expect topsoil removal and storage to be a

practical problem for the KMSP operation.

Some areas have sparse non-native tree cover. These can easily be removed by a small trackdozer

prior to the scheduled mining operations.

7.2.5 Tailings disposal

After removal of the valuable leucoxene and zircon minerals to products, the remaining sand and

clay tailings from the wet and dry plants will be used to back fill the mining voids to approximate

original contours. Pasture rehabilitation will be carried out once final placement of material is

complete.

7.2.6 Production schedule

Table 7-2 presents the production schedule. This schedule is based on a plant construction start

date of April 2014 and a mine production start date of March 2015.

Table 7-2: Keysbrook production schedule

Item Total Unit Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Mined Ore Tonnes

THM Grade

24.5

2.65%

Mt

%

-

-

3.5

2.6%

4.5

2.6%

4.5

2.7%

4.5

2.8%

4.5

2.5%

2.9

2.6%

Leucoxene 70 Grade

Leucoxene 88 Grade

Zircon Grade

27.3%

49.0%

13.6%

%

%

%

-

-

-

23.7%

53.5%

13.2%

23.0%

51.3%

13.1%

31.0%

45.5%

13.8%

29.5%

43.2%

14.9%

27.0%

51.2%

13.3%

29.8

49.2

13.4%

Product Sold – Leucoxene L70

Product Sold – Leucoxene L88

Product Sold – Zircon concentrate

Product Sold - Total

167

205

158

529

t

t

t

-

-

-

-

18.7

29.0

19.9

67.6

26.4

40.6

30.9

97.9

35.8

36.2

29.3

101.3

35.0

36.0

33.9

104.9

28.9

37.6

25.9

92.4

22.1

25.3

17.8

65.2

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7.2.7 SRK comments

SRK has carried out an independent check and was able to reasonably reproduce the Ore Reserve

for the Proved and Probable Ore Reserve. SRK considers this acceptable as an independent check.

SRK is of the opinion that the applied modifying factors for the mining method envisaged at KMSP

are correct.

Based on the material encountered in the small test pit, which MZI states is representative of the

heavy mineral sand-bearing orebody, the majority of the KMSP material is likely to be free dig.

It is possible that at the base of the material to be mined there may be some higher excavation

resistance encountered as a result of higher slimes and clay content as well as the potential for

some minor induration (‘coffee rock’).

SRK does not expect that any blasting will be required at the KMSP operation. If hard material areas

are experienced in practice, within the areas covered by the exploration drill lines, it is expected that

these areas are of relatively small extent, (otherwise these would have been intersected during the

drilling campaign).

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8 Mineral Processing

8.1 Mining Feed Unit and Wet Concentrator

Both plants will be located on the Keysbrook mining rights. The MFU will be located near the site of

mining activity and its main purpose will be to slurry up the Run of Mine (ROM) ore in water, screen

out oversize stone and rock, and pump the produced slurry to the WCP. The WCP will be located to

the central west of the deposit in an area which has no meaningful mineral sands. The location is

also close to one of the production water bores and Hopelands Road.

8.1.1 Design philosophy

The proposed plant arrangement is standard to that practiced for dry mining in Western Australia for

heavy minerals.

The design of the WCP is generally fit for purpose and comparable to other WCP operations.

One aspect that may cause operational problems is the low Constant Density (CD) Tank volume,

and pump hopper capacity. However, MZI is comfortable with the CD Tank volume and residence

time based on its operation in the Tiwi Islands which has a relatively small CD tank to flow rate.

Good plant instrumentation and control can also lower the risk of processing upsets between the CD

Tank and the Spirals section. Similar comments can be made for the pump hoppers. The design of

the wet plant incorporates a spillage collection system and pump to re-incorporate the minerals back

into the spirals system.

8.1.2 Mass and Water Balances

Spirals separation efficiencies in the Mass Balance are conservative in comparison to results

achieved in testwork. This could require minor pump speed changes. All of the pumps have been

nominated for variable speed drive (VSD) power supplies which SRK considers will overcome any

flow variation problems in commissioning and normal plant operation.

8.1.3 Wet Plant Construction

An Engineer Procure Construct (EPC) contract is in the process of negotiation with GR Engineering,

being the preferred contractor for the Wet Plant installation. This contract is on the basis of a lump

sum, turnkey scope. The contractor is responsible for a throughput guarantee and MZI will take

responsibility for plant recovery performance.

8.1.4 SRK comments

MZI planning is focusing on ensuring that the trommel provider has a unit that can handle the feed

specification.

The WCP has adequate capacity and flexibility to cope with the variations in heavy mineral content

and slimes concentration, as predicted in the Mine Plan. Good control of the Desliming Cyclones

and feed to the Rougher Spirals will be important. Spiral separation efficiencies in the plant design

are conservative compared to the testwork; however, this is appropriate.

The Mine Plan shows a one month ramp-up during commissioning to full production. This is

achievable with the relatively straight forward mineral processing and the current personnel at MZI

have substantial experience with this type of operation.

The plant availability should be in the mid to high 90%. The main maintenance requirement is

overhaul of the pumps which can be done under a preventative maintenance scheme.

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The recoveries of heavy minerals and the grade of HMC as presented in the Mass Balance are

acceptable. Testwork shows that both aspects are more than achievable. There are very consistent

zircon levels in the HMC, but there is variability between the Leucoxene minerals. Provided there is

no major change in heavy mineral specific gravity (SG), the Leucoxenes will separate out easily from

the silicate minerals, with only moderate tweaking of the spirals. Higher or lower input of HMC

should only require moderate tweaking of spirals and process control adjustment to maintain

recoveries. There are enough proposed spirals to handle increased mineral flows. The spiral

selections are at the bottom of the recommended supplier’s range and have adequate reserve

capacity.

The WCP strategy is sound for a scope of this size and based on current negotiations will be with a

reputable and experienced provider. The scope is straightforward and the key project metric will be

achievement of schedule.

8.2 Doral Mineral Separation Plant (dry plant) modifications

The HMC produced at Keysbrook will be trucked to Picton near Bunbury for drying and separation

into saleable products; L70, L88 and a Zircon Concentrate at a Doral-owned plant. The HMC will be

campaigned through the plant on a monthly rotation basis with Doral’s existing products.

The L70 is a mix of magnetic minerals which are also electrically conductive. The L70 indicates a

target Titanium concentrate of 70% TiO2 content from an ERF analysis.

The L88 is a mix of non-magnetic, but still conductive, minerals which has 88% TiO2 content.

The Zircon concentrate is a mix of non-magnetic and non-conductive minerals which, in a final wet

gravity separation section, is separated from silica and alumina-silicate minerals. The principal

mineral will be zircon, but the zircon concentrate also recovers remnant L88 (and to a lesser extent

L70) which is not recovered in the dry circuit. Losses of valuable minerals in the wet gravity circuit

are very low leading to very high overall titanium and zirconium recoveries in the Doral Mineral

Separation Plant.

The Keysbrook HMC is high in Leucoxene minerals of higher TiO2 content. The L70 and L88

products will predominantly be sold to chloride pigment plants which require a higher feedstock of

TiO2 content.

The Zircon concentrate is planned to be sold to MZI’s existing customer, Tricoastal (in China) who

will carry out the purification of the product to produce high grade Zircon and other products.

The modifications to the Doral plant have been developed from the Feasibility Study. Doral has a

good metallurgical engineering section headed by very experienced personnel; it has operational

knowledge of over a decade of handling its own mine site HMC variability, and is likely to be

producing quality products for stringent customers.

8.2.1 Design philosophy

The proposed plant arrangement is to dry and heat the Keysbrook HMC to over 80°C before carrying

out an initial separation of conductors using Coronastat electrostatic separators. The Coronastat

machines will be newly purchased for the project. The dryer is an existing unit but requires a new

exhaust scrubbing system to handle the higher proposed throughput and still satisfy WA

environmental requirements for dust emission. A new multi-deck screen, bucket elevator and

conveyor will deliver the hot HMC to the new Coronastat separators on the top floor of a new

building extension to the north side of the present plant. A second stage of Coronastat separation

will further clean up the conductors of the first stage.

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The conductors and non-conductors will then be treated further in a mix of existing and new

equipment. The conductors will be split into Magnetic and Non-magnetic fractions to form the raw

L70 and L88 (non-mag) streams using new rare earth magnetic separators.

The non-conductors are reheated above 80°C, further cleaned in new Scavenger Coronastat units

before more cleaning on existing Induced Roll Magnetic separators and then slurried in water and

treated in an existing spirals / wet table section of the Doral plant. The Zircon concentrate will be

heap de-watered and then handled by front-end loader and trucks before being stored under cover

awaiting shipment to Tricoastal. The concentrate will dry sufficiently with this handling and turn over

at tipping points.

8.2.2 Process design

The plant processing flow offers considerable flexibility to adjust the split of the conductor

Leucoxenes into magnetic and non-magnetic streams. MZI-Doral should be able to control the mass

splits to achieve the desired ratios of L70 to L88. They will likely be trying to maximise L88

production at the specified TiO2 concentration due to its higher sales price.

The quality of the Zircon concentrate is not overly critical in that it will likely be sold to their existing

customer, Tricoastal of China, who will treat the concentrate to recover the high grade Zircon and the

other mineral species. The Doral operation has to recover as much of the Zircon as is possible

without losses to silica tails or to the middlings stockpile for re-treatment.

The trash minerals are silica and alumina-silicates such as garnet and staurolite. Most of these have

been taken out in the Keysbrook wet processing. The Doral extraction of the non-conductor/ non-

mags is via the wet circuit at Picton. This section should be adequate to handle the expected

quantity of silica/ silicates and the variability in tonnes per hour.

The proposed process steps have enough flexibility to maximise L88 production without affecting

product specifications of the L88 or the other product streams. The products have a distinct colour

difference and the Zircon concentrate can also be examined under an ordinary microscope for the

amount of transparent silicate material present. Doral has a production benchtop XRF machine

where the operators can quickly determine product analyses and this will be used as the operational

analysis method for quality control.

8.2.3 Production capacity and recovery

Doral has indicated that the Picton plant has an on-line availability of 97% and that it has planned

maintenance or unplanned stoppages for a cumulative 10 to 11 days throughout the year. The plant

outages are typically not more than 24 hours in duration. This is comparable to other, more

involved, mineral sands processing plants in the South West of Western Australia. Allowing for feed

change-over per month, the half-time Keysbrook production capability at the quoted 30 tonnes per

hour (tph) dry feed rate is 126,700 tonnes per annum (tpa) which will be adequate to treat the MZI

feed.

The planned product recoveries have been based on test results from the resource and the

separated heavy minerals of drill and bulk samples. SRK considers that the separation efficiencies

used are achievable.

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8.2.4 Production schedule

It is not anticipated that there will be any major problems with a switch over from Doral to Keysbrook

processing that cannot be resolved in the first three months of the start-up of the Keysbrook WCP

and following batch processing at the Picton plant. The production rate as per the mine plan will

average ~66% nominal rates for the initial four months, which will allow Doral three monthly

campaigns to address any potential issues. Doral personnel are considered very experienced and

have, many times, had to handle HMC variability from their own mine site relocations.

8.2.5 Construction and commissioning plans

Construction planning is as described in Section 8.1.3.

The plant extension and installation of new separators will be done under a “construction” permit

system which will be more relaxed than the standard “Permit to Work” system. Delivery of

Coronastats should not be an issue according to the supplier, but it may have to supply in batches of

five to six machines at a time. The batch supply may restrict the completion of floor levels in the

building extension.

The preferred EPC contractor has substantially completed the Front End Engineering Design and

facilitate long-leads have been identified to be ordered early in the construction process.

The reviewer is of the opinion that the Doral plant extensions are capable of being completed prior to

the completion and commissioning of the Keysbrook WCP.

8.2.6 SRK comments

There are no areas of concern with the proposed separation of the Keysbrook HMC into product

streams. The Doral on-line plant run-time is achievable and there are no maintenance issues that

would affect production rate or plant availability. The separation units are all multi-machine, parallel

units and provided that access areas are allowed for in the new plant extension area, single

machines can be worked on without interruption to production through the other machines.

The processing arrangement appears to have enough flexibility and downstream processing steps to

produce on-spec products. The customers’ specification ranges will not be that stringent to cause

operational problems to Doral or to the final customers.

The maintenance system that Doral has in place will be able to achieve an on-line availability of

95%.

The forecast plant performance is based on testwork and SRK supports the rates of recovery used in

financial modelling.

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9 Tailings

9.1 Start-up operations

The planned operating sequence for the management of the tailings generated from processing is to

store tailings in the mined-out pits. At the start-up stage, it is planned to mine and stockpile

approximately 600,000 t of material for later processing, creating the initial void for tailings storage of

approximately 30 ha.

9.2 Production

Once mining commences, a low compacted bund embankment will be created within the disused pit

(if required), to separate the active mining area from the tailings storage facility (TSF).

The sand tailings slurry will be pumped to the various TSF areas to fill the voids left by mining.

The sand will dewater returning approximately 80% of the water into the site water circuit. The fine

clay fraction (slimes) will be pumped and placed in thin discrete layers over the sand tailings for solar

drying and as required, will be mechanically mixed into the upper layers of sand.

During the detailed design stage of the project, an Operating Manual and Deposition Strategy will be

developed in line with the requirements of the Department of Mines and Petroleum (DMP)

publication, Guideline on the development of an Operating Manual for Tailings Storage, May 1999.

9.3 TSF classification

The In-Pit TSF has been categorised as a Low Risk Category 3 facility in terms of the DMP

publication, Guideline on the Safe Design and Operating Standards for Tailings Storage, May 1999

due to the following reasons:

The TSF is a below ground facility;

The TSF storage height is generally 2.5 m;

No chemicals are used in the process, hence the tailings are considered inert;

There is no likelihood of contamination of surface water, groundwater or water for use by human

or stock;

No environmental impacts are expected;

Embankment failures are not expected and in the unlikely event that a failure occurs, the

economic loss will be minimal; and

Discharge outside the TSF is unlikely.

9.4 Rehabilitation

MZI has planned an ongoing rehabilitation programme for the facilities as they progress through the

various phases. A Rehabilitation Plan for the project has been developed and a review of the plan

indicates that it suitably addresses the factors required for an ongoing progressive rehabilitation

programme.

9.5 SRK comments

The planned method of managing the tailings materials generated by the processing plant at the

Keysbrook site follows the practices and procedures normally followed in the mineral sands industry.

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10 Infrastructure

10.1 Doral Dry Plant upgrade

The Doral dry plant is an existing plant on an already established site. The existing plant is more

than 10 years old and is in reasonable condition and well maintained. The existing plant will undergo

an expansion to accommodate the processing of the MZI product. The plant expansion is

predominately contained within a separate building which will make construction straightforward, but

still presents a reasonable level of brownfields interface into the existing plant.

No additional upgrades to existing infrastructure for the Doral plant have been nominated or included

in the estimate. Based on the proposed campaign style operation of the plant, no additional

infrastructure should be required as current operations will be largely unchanged.

10.2 Mine surface facilities

The mine site buildings are proposed to be prefabricated modular type construction for

administration, crib, first aid, ablution, workshop, stores and switchrooms. This is consistent with

standard practice and the expected life of the mine.

No onsite accommodation or mess facilities are required due the close proximity to Perth and local

infrastructure.

10.3 Logistics

10.3.1 Product transport logistics

MZI has received a proposal for product transport and storage logistics, although no contractual

arrangement has yet been agreed to. The proposed services include the following:

Mine site loading operations;

Mine site to Bunbury HMC transport and tailings return;

HMC storage in Bunbury;

HMC delivery to Doral MSP;

Transfer of finished product(s) to storage in Bunbury;

Transfer of finished products(s) to Bunbury Port for shiploading either through direct shiploading

or Rotobox shiploading; and

Options for Zircon export through Fremantle Port.

The proposal indicates that there will be adequate storage capacity and currently additional facilities

located in proximity to both the Doral plant and Port facilities that are being built, some of which

would be assigned to the MZI products.

10.3.2 Port access

MZI has executed an agreement with Bunbury Port Authority to allow access to the Bunbury Port for

shipping of products. The following are key elements of the Port Agreement:

Provides for Port capacity up to 100,000 tpa for MZI products;

Allows for access to Berths 1, 2 and 5 for monthly or bi-monthly shipments; and

Products to be containerised for Port handling.

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10.4 Power supply

10.4.1 Wet Plant - power supply to site

The Maximum Demand for the new site is estimated at approximately 4.2 MVA. It is planned that a

new 22 kV supply from Western Power will be made available from one of the nearby substations to

provide the site with power. MZI plans to enter into an agreement with Western Power with the

following key aspects:

HV supply will be provided to Keysbrook mine site for 4.627 MVA;

Western Power scope is to install 400 mm2 HV dedicated feeder cable from Pinjarra zone

substation to mine site;

New connection is estimated to be energised in late 2014; and

Total estimated project cost is A$4.8M. After revenue offset, the estimated project cost is

A$4.4M.

10.5 Water supply

Potable water will be trucked to site and stored in a potable water tank for site distribution and use.

A water extraction license has already been granted and make-up process water will be supplied

from two bores already established at the plant site.

Water will be extensively recycled at the site, but the MSP report water balance indicates that the

water extraction license allowance is close to the make-up water requirement; during the summer

months when water evaporation is high; this presents a risk to having adequate process water

available to maintain production levels.

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11 Hydrology Keysbrook is on the eastern edge of the Swan Coastal Plain. This area experiences a

Mediterranean climate characterised by cool wet winters and warm to hot dry summers. The mine

area lies between the 1,000 and 1,100 mm rainfall isohyets.

At the regional scale, surface drainage of the project area flows to the Peel Inlet. Streams from the

Darling Scarp and foothills flow from east to west through the project area. On a local scale

(Figure 11-1), the Balgobin Brook is the main drainage system that passes through the central

portion of the project area. Approximately 80% of the project area is situated within this catchment.

Balgobin Brook flows south-west into Nambeelup Brook, which then flows to a series of major lakes.

Other drainage lines traverse the project area but these will not affect mine infrastructure.

Figure 11-1: Surface drainage lines within project area

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11.1 Surface water management

11.1.1 Flood risk

The mine area and surrounds are characterised by low relief topography (Figure 11-2). Medium

water courses are well defined and minor water courses are poorly defined. Based on rainfall in the

area and the catchment characteristics, peak flows will be less than 5 m3/s (MBS, 2006), which

based on observed catchment characteristics appears reasonable. Although no dedicated flood

study has been carried out for the project area, the studies done by MBS (2006, 2012) adequately

characterise the hydrological processes which dominate the project area.

Figure 11-2: Looking upslope from creek to where process plant will be situated

Proposed mitigation measures include bunding and diversion drains for the areas where sheet flow

occurs (minor watercourses). Surface water runoff from infrastructure areas such as the primary

processing plant and administration offices will be directed to settling ponds to allow sediment to

drop out of suspension prior to discharge.

11.1.2 Surface water baseline studies

A basic annual water balance has been developed for the operation. The model is basic in that it

does not account for climatic variability and is not integrated across all mining disciplines. Monthly

mine water balances are developed to understand the site water management system. It is used to

determine additional water required for mine operations or required disposal of water, and the sizing

of water storage facilities, by taking the climatic variability of the site into account. Water balance

model inputs include rainfall, runoff, groundwater and raw water, as well as mine water demands

such as evaporation, processing, human consumption and dust suppression. A mine site water

balance is not a regulatory requirement in Western Australia and a lack of such a balance does

not have any statutory impacts on this project. However, a sound water balance over the project life

is essential for planning, design optimisation and the overall management of mine operations.

11.2 SRK comments

Although no flood studies have been done for the site, site observations and information provided by

Martin Bosch Sell (MBS, 2006) indicate that the risk of flooding is low. SRK agrees, provided that

adequate water management infrastructure is constructed.

Baseline data for surface water flows are adequate; however, baseline surface water quality data

(e.g. sediments) are lacking. Samples should be collected before and after construction

commences. Currently the mine does not have an integrated mine water management balance.

Although this is not a legislative requirement, it is a useful tool to understand all inputs and outputs of

water to the mine which helps better manage water deficits or excesses and should be developed.

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12 Hydrogeology

12.1 Water requirements

The current total site water requirement is 18 GL per annum with 89% made of recycled water

(~16 GL) and 11% water loss from the system (~2 GL through evaporation and seepage) that needs

to be replaced for the LOM (MBS, 2012).

The initial water for the system will be drawn from mine catchment runoff and from the Superficial

and Leederville aquifers. As mining and processing proceed, the water requirements will

progressively increase.

12.1.1 Water supply

The current water supply requirement of 2 GL per annum will be achieved by the extraction of 1.8 GL

per annum of groundwater from the Leederville aquifer and 0.2 GL per annum from the Superficial

aquifer.

The two Leederville aquifer production bores (KL2P and KL3P) were tested and can each provide

40 L/s (1,262,000 m3/annum). The potential bore field supply is therefore estimated at 80 L/s

(or 2.52 GL per annum), well above the sustainable yield of 1.81 GL per annum (~57 L/s) over the

LOM, as allowed by the Licence to take water from the Lower Leederville aquifer. As stated by

Rockwater (2013), “average pumping rates should be limited to a maximum of 28.5 L/s”. SRK notes

that in case of borehole failure, one production bore can sustain the water supply requirement for the

mine site for the period of production bore maintenance and/or replacement.

Extraction of 0.2 GL per annum (~6.3 L/s) from the Superficial aquifer through in-pit sumps is an

estimate and is expected to be extracted generally during wet winter seasons. In the mining area,

the water table of the Superficial aquifer ranges from 0 m to 10 m below ground surface.

Groundwater modelling undertaken by Rockwater (2006) from Mining Block 1 to Mining Block 7

predicted estimate rates of water flow into the excavation ranging between 130 and 2,400 m3/d

(or ~2 to 28 L/s) and varying seasonally and in relation to the mine geometry, water table depth, and

proximity of water courses. In addition, the mining of Block 8 is not expected to reach the water

table and therefore in-pit sumps in Block 8 will be used only to collect surface water runoff over the

mine area, and decant water and seepage from in-pit tailings (~30 ha mining area). Based on this

information, it is SRK’s opinion that a deficiency in daily water supply of ~6.3 L/s from the Superficial

aquifer may be expected during the summer / autumn dry season over the LOM and when mining

Block 8.

To account for the reduced inflows to the pit from the Superficial aquifer, MZI may increase

production bore abstraction from the Leederville aquifer. In addition, MZI also indicates that it should

be able to maintain an existing in-pit sump within areas of saturation of the Bassendean Sand to the

north (i.e. within a pre-mined area) to take water from the Superficial aquifer during the term of

Mining Block 8, should it be required.

Results from a monthly site water balance developed by GRM in GoldSim™ (GRM, 2014) for a

2-year period and representing the worst case scenario for the mine site1 when encountering

saturated conditions in the Bassendean Sand indicates that the current groundwater allocation will

be sufficient to meet the project’s water demands with a supply redundancy of approximately 6 L/s or

greater that can account for any potential daily water supply deficiency from the Superficial aquifer.

1 The assumptions and data used for the worst case scenario include a constant low predicted dewatering rate of 3.8 L/s, dry

climatic conditions, a constant feed rate of 4.5 Mtpa, a constant water usage for dust suppression of 176,000 m3 /annum) for a

tailing water retention of 24.7%, a negligible seepage loss from the mine void, a borefield supply equivalent to the groundwater licence allocation (~ 57 L/s) and a constant water storage capacity of 18,600 m that do not allow for redistribution of the Leederville aquifer allocation over the water year.

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12.1.2 Water recovery

The recycled water (~16 GL per annum) will be made up of water recycled from the process plant

thickener (~9.3 GL per annum) and water from tailings backfilling the mine areas (~6.7 GL per

annum), causing localised recharge to the Superficial groundwater system.

Seepage of water from in-pit disposal to the groundwater system may vary considerably depending

on the local permeability of the Bassendean Sand and the underlying Guilford Formation, as well as

the in situ permeability of the tailings. The backfilling of the pit(s) with tailings will create a

groundwater mound underneath the pit(s) that will progressively attenuate with time. The difference

of head between the in-pit tailings disposal and the adjacent pit will direct this artificial recharge and

groundwater seepage to the pit. When mining Block 8, water recycled from in-pit tailings disposal

may not be met, as the bottom of the pit will not intersect the static water level in the Bassendean

Sand to be mined. Seepage underneath the pit is expected to be higher (due to the difference of

head between the in-pit tailings disposal and the natural groundwater) and higher loss of water to the

system may be expected. Therefore, the expected water recovery from in-pit disposal of tailings

may not be achieved during the LOM. MZI plans to use the initially created mining void as water

storage which will allow a soft impact scenario to manage any potential water deficit.

12.2 Groundwater quality and quantity

12.2.1 Groundwater quality

Groundwater quality data for the Superficial aquifer are available from site monitoring bores sampled

during a water monitoring programme undertaken in October 2012 and from partial analyses of

water samples taken from regional monitoring bores (i.e. Lake Thompson bores).

Groundwater quality data for the Leederville aquifer are available from the production bores KL2 and

KL3 sampled at the end of pumping tests in April - May 2007 and from monitoring bores sampled

during a water monitoring programme undertaken in October 2012.

The water quality data collected in October 2012 will be used as the baseline groundwater quality for

the Superficial and Leederville aquifer in the vicinity of the Project. In the vicinity of the mine site,

groundwater is generally fresh with total dissolved solids (TDS) values ranging between 200 and

1,000 mg/L in the Superficial aquifer and up to 1,500 mg/L in the Leederville aquifer (MBS, 2012).

Groundwaters also contain variable metal contents (e.g. dissolved iron content up to 26.3 mg/L in

the Superficial aquifer and up to 36.7 mg/L in the Leederville aquifer that are not suitable for drinking

purposes without treatment.

12.2.2 Groundwater quantity

Superficial aquifer

In the Water Management Plan (MBS, 2012) it is stated that, “The water drawn from in-pit sumps will

be a combination of mostly groundwater inflows (seepage from Superficial aquifer) into the pit and

surface water catchment based on the 30 ha mining area (mine blocks bunded to prevent

surface-water run-off to or from them, while mining occurs).”

The 0.2 GL per annum (6.3 L/s) is an average estimate, expected to be extracted generally during

wet winter seasons. Groundwater modelling (Rockwater, 2006) predicted extraction rates ranging

between 130 and 2,400 ML/d (or 2 to 28 L/s) and varying seasonally and in relation to the mine

geometry, water table depth, and proximity of water courses. SRK notes that a deficiency in daily

water supply from the Superficial aquifer may be expected during the summer / autumn dry season

over the LOM and when mining Block 8.

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Leederville aquifer

The results of pumping test and groundwater modelling performed by Rockwater (2006, 2007, 2013)

indicate that two production bores are capable of supplying approximately 40 L/s each. It is

anticipated that production bores will be operated at a maximum of 28.5 L/s to not exceed the

Leederville licence allocation of 1.8 GL/a.

12.3 Borehole water impact

12.3.1 Impact on aquifer system

Water level drawdowns in the Superficial and Leederville aquifers as a result of pumping two

production bores over the mine life in the Leederville aquifer were simulated by Rockwater (2007).

Based on groundwater modelling (Rockwater, 2012), SRK is of the opinion that the extraction of

1.8 GL per annum from the Leederville aquifer will not affect the quantity of groundwater available to

other users and ecosystems in the area.

12.3.2 Impact on surrounding water system

Rockwater (2007) models the predicted water level changes to the wetlands located closest to active

mine pits at Lot 62 and Lot 59.

The modelling results indicated minor and short-term impacts on the wetland at Lot 62 where mining

was conducted within 50 m of the wetland boundary. A drawdown of up to 0.2 m at the wetland was

simulated with recovery to pre-mining levels within 12 months following mining and backfilling.

At Lot 59, the model indicated no drawdown at all in the wetland which relied rather on the surface

water system than the groundwater system.

SRK agrees that a buffer area of 100 m between the pit(s) and the wetlands, as stated in the Water

Management Plan (BMS, 2012), will ensure that the mine will not affect the quality or quantity of

groundwater available to other users in the area, or adversely affect the ecosystems in the area

(e.g. wetlands).

12.4 SRK comments

SRK concludes as follows:

While there is risk in a deficient groundwater supply from the Superficial aquifer through in-pit

sumps when mining Block 8 and also possibly in the first year, should it be required, the planned

mitigators are adequate and include the following:

Increasing production bore abstraction from the Leederville aquifer during the summer

months to account for the reduced inflows to the pit from the Superficial aquifer, and

decrease production bore abstraction during the winter months when there is no shortage of

inflows to the pit from the Superficial aquifer;

Maintaining an existing in-pit sump within areas of saturation of the Bassendean Sand within

a pre-mined area to take water from the Superficial aquifer when mining Block 8.

The groundwater extraction from the Superficial and Leederville aquifers will not affect the

quantity and quality of groundwater available to other users or adversely affect the ecosystems

in the area (e.g. Conservation wetlands).

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13 Environmental

13.1 Environmental Approvals and Permitting

Access to and extraction of mineral resources and land access for that purpose in Western Australia

is, where the minerals are owned by the State, regulated by the Mining Act 1978 (WA) (‘the Mining

Act’) and associated legislation, administered by the DMP.

The Mining Act - Section 9 states, in the case of land alienated in fee simple before 1 January 1899,

all minerals other than gold, silver and precious metals are owned by the private landowner and not

the State. The approval to extract minerals (other than those mentioned) and land access for that

purpose instead requires agreement with the relevant private landowner.

The Keysbrook Project Feasibility Study states, “Land titles in the Keysbrook area were granted prior

to 1899, and consequently are freehold and ‘minerals to owner’, meaning that the minerals are

owned by the private landowner and not the State (with the exception of Royal minerals, which

include platinum, gold and silver). In these circumstances, under Western Australian law,

companies holding mining tenements do not receive any rights to mine on privately held land (and as

such a mining lease is not required); instead a compensation agreement is required with individual

land owners, and approvals to develop projects fall into the jurisdiction of the Department of

Environment and Conservation (DEC) and local Shires”.

MZI confirmed it had conducted consultation with DMP and sought legal assistance to validate that

the project would not be subject to the Mining Act 1978 and would not require a standard Mining

Licence, but would be governed under the Planning and Development Act 2005 (P & D Act) by the

Western Australian Planning Commission (WAPC) and require an Extractive Industries Licence and

private agreements with the landowners and local shires.

All extractive industry proposals (regardless of the type of land holding) are subject to the provisions

of the Environmental Protection Act 1986 (EP Act) for clearing applications. DMP applications are

also considered in relation to other acts such as the Aboriginal Heritage Act 1972. Local government

applications are subject to local laws and the WAPC’s state planning policies.

MZI has negotiated mining agreements with four key landowners who hold the land on which

development approvals and extraction licences have been granted. Key approvals as presented by

MZI are summarised in Table 13-1.

Table 13-1: Key approvals summary

Application Responsible

Authority SAT Reference

Approval Date

Substantial Commencement

Expiry Date

Approval to commence development – Town Planning Scheme No 4

Shire of Murray DR 139 of 2010 15/3/2012 15/3/2015 29/6/2023

Planning Approval – Peel Region Scheme

WAPC No review 29/6/2011 29/6/2015 29/6/2023

Approval to commence development – Town Planning Scheme No. 2

Shire of Serpentine-Jarrahdale

DR 151 of 2010 15/3/2012 15/3/2015 15/3/2020

Approval to commence development – Metropolitan Region Scheme

Shire of Serpentine-Jarrahdale

DR 419 of 2010 15/3/2012 N/A 27/2/2022

Extractive Industry Licence Shire of

Serpentine-Jarrahdale

DR 226 of 2010 15/3/2012 N/A 15/3/2020

Extractive Industry Licence Shire of Murray DR 173 of 2011 15/3/2012 N/A 29/6/2023

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Note that the planning approval under the Peel Region Scheme requires substantial commencement

of works within two years of the date of approval, being 29 June 2015.

Under the extractive licences, MZI will be required to submit a Works and Excavation programme to

the Director of Development Services at the Shire of Serpentine-Jarrahdale prior to commencement

of excavation.

An application has been submitted to the Shire of Serpentine-Jarrahdale to extend the expiry date

for the approvals and extraction licence, to 29 June 2023, in order to align all approvals.

This approval is in progress.

The Keysbrook project underwent formal assessment under Part IV of the EP Act. Approval of the

project under the EP Act was granted in October 2009.

This approval authorises:

Mining of approximately 920,000 t of mineral sands on about 1,366 ha of land;

Construction and operation of a primary processing plant;

Dewatering of the Superficial Bassendean Aquifer for 0.2 GL per annum;

Bore abstraction of up to 1.8 GL per annum from two bores in the deep Leederville aquifer; and

Export of heavy mineral concentrate by road to the MSP in Picton.

MZI has entered into an agreement to toll treat the Keysbrook Project concentrate at the Doral MSP

at Picton (nearby the Port of Bunbury). The Doral property is licensed under Part V of the EP Act to

process mineral sands. Plant upgrades are required to accommodate the processing of concentrate

from Keysbrook and as such a Works Approval shall be sought by Doral under Part V of the EP Act

to ensure the appropriate environmental assessment and licencing of the updated facility. Doral has

committed to undertake the expansion works and application for the Works Approvals at MZI’s

expense.

13.2 Environmental Compliance and Conformance

MZI has undertaken a comprehensive environmental impact assessment as outlined in the Public

Environmental Review (PER) of the project. Studies have been undertaken to identify potential

impacts arising from the project with regard to groundwater, surface water, flora, fauna and the

atmosphere.

The Minister’s approval (MS810) was subject to conditions including:

Compliance assessment and reporting;

Performance review and reporting;

Protection of native vegetation and development of an offset for clearing of native vegetation;

Protection of watercourses and wetlands;

Weed and dieback management;

Water management;

Acid sulphate soils management;

Noise management;

Air quality and dust management;

Rehabilitation of disturbed areas;

Lodgement of a performance bond; and

Lodgement of a number of aspect specific management plans prior to works commencing.

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In the preparation of the above listed plans, MZI has carried out extensive consultation with the DEC,

Department of Water (DoW), the Shire of Serpentine-Jarrahdale and the Shire of Murray to ensure

their acceptability. SRK notes that all items had been actioned and the appropriate plans, review

and reporting procedures produced.

The Environment Protection and Biodiversity Conservation (EPBC) Act approval (EPBC 2005/2163)

requires that a Conservation and Offset Rehabilitation Plan (CORP) is developed and approved prior

to work commencing. The key component of this plan is the development of a 75 ha offset area

(which contains foraging and / or breeding habitat for Carnaby’s and Baudin’s Black Cockatoos) that

must be reserved for conservation in perpetuity. SRK confirms the Company has commenced

development of this plan and has negotiated with private landowners to acquire land to be used for

the offset in perpetuity.

The offset area identified in Schedule 1 of Ministerial Statement 810 and EPBC Act Approval

overlays portions of the resource which the Company had intended to mine as part of the Project.

Since receiving the approvals, the Company has acquired property in the area which has native

remnant vegetation which it is proposing to use as an alternative offset area, which would make the

additional ore available to mine.

13.3 Project Environmental aspects

MZI has undertaken investigation and assessment of relevant environmental aspects of the Project

as part of the overall environmental impact assessment process. The environmental impact

assessment process additionally identified a range of management opportunities. These have been

formalised in management plans that sit within the Health, Safety, Environment and Community

(HSEC) Management System as follows:

Land disturbance;

Flora and Fauna;

Water management;

Air emissions;

Noise emissions;

Hazardous material;

Waste management; and

Contaminated sites.

13.4 Social aspects

A Community Consultation Framework contains a number of requirements for the Project, including:

Annual briefings to Councils of the Shires and local members of Parliament;

Public briefings at the commencement of each stage;

Meetings with community groups annually and at the commencement of each stage;

Briefing sessions every six months and a final session after cessation of excavation activities;

Establishment of the Community Consultation Group by seeking nominations for membership by

15 June 2012 (within a nomination period of 60 days);

Community Consultation Group meetings every two months;

Review of the Community Consultation Framework;

Provision of Terms of Reference to Community Consultation Group for discussion at the first

meeting; and

Community Consultation Group to review Terms of Reference every two years.

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Under the Native Title Act 1993, given the Keysbrook Project is located on freehold land, native title

claim is extinguished. MZI, though, still consider it important to recognise the value of protecting any

Aboriginal heritage and compliance with Aboriginal Heritage Act 1972.

In 2005, MZI completed a desktop survey of its exploration tenements, and the Keysbrook Project

area, examining heritage issues and conducted an ethnographic and archaeological survey in 2006.

The survey was accompanied by five representatives of the Gnaala Karla Booja native title claimant

group, with the survey being conducted on behalf of the South West Land and Sea Council.

The study concluded that no ethnographic sites were identified during the survey, and the Gnaala

Karla Booja native title claimant group had no objection to the Project proceeding.

Previous research by the Company had identified three potential sites, all drainage ways, which the

Gnaala Karla Booja native title claimant group did not consider to be sites. Nevertheless, MZI has

accommodated the sites into its planning activities, and plans to avoid them during mining

operations. The assessment reports indicated that no Section 18 actions would be required.

13.5 Rehabilitation and Closure Planning

The aim for Keysbrook Project is to return all areas impacted by mining to a self-sustaining condition

that is capable of supporting the designated post mining land use.

Re-establishment of pasture is a key component of the Rehabilitation Management Plan (RMP) as

the project area will predominantly be returned to a grazing land-use on completion of mining.

Re-establishment of self-sustaining, local provenance native vegetation at a ratio of not less than 1.4

to1 (that is 1.4 ha of revegetation per one hectare of vegetation cleared) is a key requirement for the

Project.

As the project is located on pre-1899 land and no mining lease is required, MZI is not required to

lodge a bond under the terms of the Mining Act to provide a financial resource if rehabilitation and or

closure is not undertaken to the satisfaction of the State.

In recognition of this, Ministerial Statement 810 specifies in Condition 13 that a Performance Bond is

required to be lodged with the Minister for Environment in the form of an unconditional and

irrevocable bank guarantee. The amount of the guarantee is variable over the life of the project and

reflects the changing disturbance area over time. MZI plans to lodge performances bonds in line

with Condition 13.

Additionally, MZI has also confirmed they will also make financial provisions for closure of the Project

as part of its internal accounting processes. Financial provisioning will consider costs for the

following:

Decommissioning and removal of infrastructure;

Earthmoving and landform shaping;

Restoration of natural drainage;

Vegetation re-establishment;

Post-closure monitoring and maintenance; and

Project management.

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13.6 Evaluation of Environmental and Social Risks

As part of the Project assessments, MZI has considered the key environmental risks associated with

the Project’s development and operation. Detailed site-specific management plans have been

developed for all key environmental aspects to prevent or minimise potential adverse impacts.

These include:

Acid Sulphate Soils Management Plan;

Air Quality and Dust Management Plan;

Noise Monitoring Plan;

Water Management Plan;

Nutrient Management Plan;

Fauna Management Plan;

Weeds and Dieback Management Plan; and

Rehabilitation Management Plan.

The key environmental impacts of the project relate to air quality, noise, groundwater and clearing of

native vegetation which provides habitat to fauna species of conservation significance. These issues

were subject to assessment by the Federal, State and relevant local government authorities with all

authorities concluding these impacts could be prevented or managed sufficiently to allow the project

to proceed.

13.7 SRK comments

MZI has followed the required Australian National and Western Australian State and local

government requirements. MZI has identified, investigated and considered potential impacts and

proposed appropriate planning and management methodologies for the KMSP. These risks can be

managed via the application of best practices and adherence to the required standards they have

been set for the Project.

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14 Project Implementation MZI is well advanced with negotiations with a preferred contractor for the construction of the

processing plants. A Lump Sum contract is being used and, as such, the responsibility is with the

contractor to prepare implementation plans.

Concurrent with this, MZI has adequate time to develop operational; readiness and source and

mobilise mining equipment ahead of the process plant feed milestones.

The key project milestones are shown in Table 14-1.

Table 14-1: Project milestones

Key milestone Date

FID Week 0

Commence detailed design FID +1 week

WCP Mechanical Completion (MC) 50 weeks

MSP Mechanical Completion (MC) 48 weeks

Transport HMC WCP MC + 2 weeks

WCP Practical Completion WCP MC + 6 weeks

MSP Practical Completion MSP MC + 6 weeks (excluding 2 weeks for HMC production)

First Production FID + 52 weeks

Full Production FID + 58 weeks

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15 Operating Costs MZI has developed an operating cost model, in Australian dollars (A$), based on the main cost

centres of Keysbrook mine.

An operating cost summary is presented in Table 15-1.

Table 15-1: Operating cost summary

Cost Area LOM Cost (A$M)

(including escalation

Unit cost (A$)/product

(including escalation)

Mining 73.46 139

Wet Plant 50.32 95

Dry Plant 43.76 83

Transport 18.06 34

Administration, Landowner & Community Payments 17.39 33

Rehab and Environment 7.29 14

Mine Closure 4.75 9

Total 215.03 406

SRK considers that these costs are appropriate for the planned cost centres. In the above costs,

BDO is to calculate the Administration, Landholder Royalty & Community payments which will be

included in the OPEX. The operating cost above does not include royalties; the final operating cost

calculated by BDO will include royalties, which will depend on BDO’s commodity price assumptions

used in the IER.

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16 Capital Costs The Keysbrook operation includes the following areas of capital expenditure:

The Keysbrook Wet Concentration Plant and associated infrastructure;

Upgrades to the Doral Mineral Separation Plant;

Acquisition of land;

Pre-production activities;

Associated owner’s costs; and

Sustaining capital.

Total capital expenditure is estimated at A$87.6M, as summarised in Table 16-1.

Table 16-1: Keysbrook capital expenditure

Area Total (A$M) Remarks

Construction

Keysbrook Wet Plant 36.8 EPC contract

Power Upgrade 4.4 Fixed

Doral Dry Plant 18.3 EPC contract

Landowner Payments 5.2 Fixed

Pre-Production Operations 5.3 Variable

Contingency 2.9 Allowance

Capital – Owners (incl Growth) 5.2 Fixed/ Variable

Capital - Other 2.1 Variable

Pre-Production Owners Costs 7.4 Variable/ Fixed1

Project Capital Cost 87.6

General 0.4

Pumps and Pipes 4.0

Sustaining Capital (LOM) 4.3

1 Includes landowner payments

The Project has a reasonable amount of firm costs at this stage, in particular lump sum contracts for

the major plant installations with firm scopes. In total, there is A$5.9M allowance for project

contingency and growth, which represents 79% of the base variable costs. SRK considers this

adequate for the Project based on the figures presented in Table 16-1.

SRK estimates a salvage value of 15-20% for capital & PPE at the end of the mines life. There may

be a number of potential buyers once processing is completed, as there are numerous mineral

sands operations in the southwest of WA.

MZI also has land holdings with a Book Value of A$11.2M. Once rehabilitated this land could be

sold at the end of the mines life.

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MZI001 Technical Assessment Report KMSP Compiled by

Simon Hanrahan

Principal Consultant

Peer Reviewed by

Anthony Stepcich

Principal Consultant

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17 References Geology

Baxter 2011. Keysbrook Leucoxene Project Resource Report, June 2011.

Coxhell, 2010. Keysbrook Resource Estimate Memorandum (Auger Drilling), June 2010.

Digirock, 2012. Keysbrook Project, WA 2012 Aircore Drilling Programme July 2012.

MZI, 2012. Keysbrook Mineral Sands Project 2012 Feasibility Study (Chapter 7).

MZI, 2013a. Keysbrook QAQC Drilling Memorandum, November 2013.

MZI, 2013b. Keysbrook Density Sampling Memorandum, November 2013.

Olympia, 2008. Keysbrook Leucoxene Project Mineralogy and Resource Report, July 2008.

Optiro, 2012. Keysbrook Project – Mineral Resource estimate, October 2012.

Optiro, 2013a. Keysbrook QAQC Analysis Memorandum, December 2013.

Optiro, 2013b. 2013 Keysbrook Density Review Memorandum, December 2013.

Slyth 2006. Keysbrook Density Testwork Western Geotechnics Group Memorandum, June 2006.

Mining

Keysbrook mineral sands 2012 Feasibility Study.

Processing

P Gazzard, Update of Recoveries for Keysbrook Project , Sept ’13.

Unknown, ML Report 218, Bulk Sample Wet Gravity Circuit Processing, Jan’13, Draft Status, authors not specified, Eugene Dardengo, AML Project Manager.

Unknown, AML Report 207, Bulk Sample Processing (by dry separation processes), Dec’12, Final Status, no specific authors, Eugene Dardengo, AML Project Manager.

MSP Engineering, MSPE Drawings 5906-PI-001 thru to PI-023, Mar’13, Hand “Red-Line” marked up Piping and Instrumentation Drawings from FEED Study for Keysbrook site.

MSP Engineering,Drawings 5906-G-001 to 011, Mar’13, General Mechanical Arrangement from FEED Study for Wet Concentrator.

MSP Engineering, Drawings 5906-G-050 to 061, Mar’13, General Mechanical Arrangement from FEED Study for Mine Feed Unit.

MSP Engineering, MSPE Drawings 5907-PI-001 thru to PI-025, Mar’13, Hand “Red-Line” marked up Piping and Instrumentation Drawings from FEED Study for Doral site upgrade.

MSP Engineering, MSPE Drawings 5907-G-001 and 002, Mar’13, FEED Study Site General Arrangement for Doral site upgrade.

MSP Engineering, MSPE Drawings 5907-M-001 to 006, Mar’13, FEED Study Site Mechanical Arrangement for Doral site upgrade. 4 floor plans and 2 elevations.

MSP Engineering, Doral MSP Upgrade Folder, Mar’13, Collection of PDF scanned drawings and documents of the state of MSPE’s FEED study, including design criteria, mechanical data sheets, construction schedule, and other project documents.

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MSPE Engineering, 5905-J-RP-100, Oct’12, MSPE Definitive Feasibility Study report in support of MZI’s BFS “2012 Feasibility Study”.

Unknown, Financial Spreadsheet, Various revisions incorporating a project timeline assessment of construction, mining, processing, mineral recoveries, transport to/from Doral, mineral separation to product, operating costs and potential sales dollars and financial assessments ( ROI, IRT, NPV etc.). The spreadsheet was continually modified as new information became available.

Infrastructure

Keysbrook Mineral Sands Project – 2012 Feasibility Study.

MZI Resources Limited, Keysbrook Mineral Sands Project – Capital and Operating Cost Feed Study – Document number 5905-J-RP-100.

MZI Resources Limited, Keysbrook Project – Mineral Resource Estimate.

MZI Ltd. Keysbrook Mineral Sands – Schedule Report.

MZI Resources – Keysbrook Project Feasibility Study Presentation.

Hydrology

MBS – Keysbrook mineral sand project, Surface hydrology report, March 2006.

MBS – Keysbrook water management plan, October 2012.

Keysbrook mineral sands 2012 Feasibility Study.

Hydrogeology

Rockwater 2013. Summary of bore re-development and pumping tests of Leederville production bore KL2P and KL3P, March 2013.

Rockwater, 2012. Groundwater Licence Operating Strategy, Technical report prepared by Rockwater on behalf of MZI Resources, November 2012.

Rockwater, 2007. Keysbrook Mineral Sands project – Keysbrook area hydrogeological assessment stage 2. Technical report prepared by Rockwater on behalf of Olympia Resources Ltd, June 2007.

Rockwater, 2006. Keysbrook Mineral Sands project – Hydrogeological assessment for dewatering and water supplies. Technical report prepared by Rockwater on behalf of Olympia Resources Ltd, March 2006.

MBS, 2012. Water Management Plan – Keysbrook Mineral Sands Project. Technical report prepared by MBS Environmental on behalf of Matilda Zircon Ltd, October 2012.

GRM, 2014. Keysbrook Mineral Sands project – Water balance and water supply assessment. Technical draft report prepared by Groundwater Resource Managements on behalf of MZI, January 2014.MBS, 2006. Keysbrook Mineral Sands project – Surface Hydrology Report. Technical report prepared by MBS Environmental on behalf of Olympia Resources Ltd, March 2006.

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Environmental

MZI Resources Documents

Binding Term Sheet Agreement (Term Sheet) between Doral Mineral Sands Pty Ltd (Doral) of Suite 4/28 Kintail Road, Applecross, WA and Matilda Zircon Ltd (Matilda) of 38 Brisbane Street Perth, 2012.

Matilda Zircon Ltd, No Date, Mosquito Management Plan.

Mining Agreement between Olympia Resources and Thorndale Pty Ltd, 2009, Cover letter Re: Waiver under clause 2.2© of contract.

Mining Agreement Lot 62, Hopeland Road, North Dandalup, 2006, between Olympia Resources Ltd and Thorndale Pty Ltd.

Mining Agreement Lot 63 Hopeland Road, Keysbrook (Draft), 2012, between Matilda Zircon Ltd and James Henry Charles Hill.

Mining Agreement Lot 63 Hopeland Road, Keysbrook, 2012, between Matilda Zircon Ltd and James Henry Charles Hill.

Mining Agreement Lots 300 and 59 Westcott Road, North Dandalup – Notice of Waiver of Conditions, 2008, between Olympia Resources Ltd and Lanstal Pty Ltd.

Mining Agreement Lots 300 and 59, Westcott Road, North Dandalup, 2005, between Olympia Resources Ltd and Lanstal Pty Ltd.

MZI Resources, 2012, Fitness for Work.

MZI Resources, 2012, HSEC Air Quality Standard.

MZI Resources, 2012, HSEC Buildings and Structures.

MZI Resources, 2012, HSEC Community Standard.

MZI Resources, 2012, HSEC Contractor Management Standard.

MZI Resources, 2012, HSEC Electrical Safety Standard.

MZI Resources, 2012, HSEC Hydrocarbons and Chemicals Standard.

MZI Resources, 2012, HSEC Land Use Standard.

MZI Resources, 2012, HSEC Management System Standard.

MZI Resources, 2012, HSEC Noise Management Standard.

MZI Resources, 2012, HSEC Policy.

MZI Resources, 2012, HSEC Water Use and Quality Standard.

MZI Resources, 2012, HSEC Work Permits Standard.

MZI Resources, 2012, Keysbrook Mineral Sands Project Feasibility Study.

MZI Resources, 2012, Machinery Safety Standard.

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Technical Consultant Documents

EPCAD Pty Ltd Landscape Architects and Environmental Planners, 2011, Visual Management Plan, Prepared for Keysbrook Leucoxene Pty Ltd.

FirePlan WA, 2010, Fire Management Plan, Keysbrook Leucoxene Pty Ltd Mineral Sands Extraction Area Various Lots Keysbrook & North Dandalup, Prepared for Keysbrook Leucoxene Pty Ltd.

Lloyd George Acoustics Pty Ltd, 2009, Noise Monitoring Plan, Prepared for Matilda Zircon Ltd.

MBS Environmental, 2006, Keysbrook Mineral Sand Project, Keysbrook, Western Australia: Public Environmental Review, Prepared for Olympia Resources Ltd.

MBS Environmental, 2007, Water Management Plan, Prepared for Olympia Resources Ltd.

MBS Environmental, 2010, Keysbrook Mineral Sand Project Keysbrook, Western Australia Acid Sulfate Soils Management Plan, Prepared for Matilda Zircon Limited.

MBS Environmental, 2011, Rehabilitation Management Plan, Prepared for Matilda Zircon Ltd.

MBS Environmental, 2011, Weed and Dieback Management Plan, Prepared for Matilda Zircon Ltd.

MBS Environmental, 2012, Air Quality and Dust Management Plan Keysbrook Mineral Sand Project Keysbrook, Western Australia, Prepared for Matilda Zircon Limited.

MBS Environmental, 2012, Compliance Assessment Report Keysbrook Mineral Sands Mine Ministerial Statement 810, Prepared for MZI Resources Ltd.

MBS Environmental, 2012, Draft Water Management Plan, Prepared for Matilda Zircon Ltd.

MBS Environmental, 2012, Nutrient Management Plan, Prepared for Matilda Zircon Ltd.

Governmental Documents

Assistant Secretary Policy and Compliance Branch Department of the Environment and Heritage, 2005, Decision on Controlled Action, Controlling Provisions and Designation of Proponent – Olympia Resources Ltd.

Department of the Environment, Water Heritage and the Arts, 2009, Extension to Time in Which to Make a Decision Whether to Approve a Controlled Action – Keysbrook Mineral Sands Mine (EPBC No 2005/2163).

Department of the Environment, Water Heritage and the Arts, No date, Note in Relation to Change of Company Name, Keysbrook Mineral Sands Mine, WA (EPBC No 2005/2163) – Olympia Resources Ltd changed company name to Matilda Zircon Ltd.

Department of the Environment, Water, Heritage and the Arts, 2010, Approval Keysbrook Minerals Sands Mine, WA (EPBC No 2005/2163).

Department of Sustainability, Environment, Water, Population and Communities, 2012, Variation to Conditions Attached to Approval – Keysbrook Mineral Sands Mine, WA (EPBC No 2005/2163).

Director Development Services, Serpentine Jarrahdale Shire, 2012, Mineral Sands Extraction – Keysbrook Extractive Industries Licence.

Director Planning and Development, Shire of Murray, 2012, Planning Approval for Heavy Mineral Sands Excavation and Associated Primary Processing – Lot 59 Westcott Road, Lot 62 Hopelands Road and Lot 300 Atkins Road South Western Highway, North Dandalup.

Environmental Protection Authority WA, 2010, Keysbrook Mineral Sands Mine – Statement 810 – Compliance Assessment Plan Approval.

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Environmental Protection Authority WA, 2012, Keysbrook Mineral Sands Mine (Ministerial Statement 810) – Conditions 10-1, 10-2, 10-3; Nutrient Management Plan Approval.

Environmental Protection Authority WA, 2013, Keysbrook Mineral Sands Mine (Ministerial Statement 810) – Section 45C Application.

Minister for the Environment, 2009, Ministerial Statement 810 for Keysbrook Mineral Sands Mine, Matilda Zircon Ltd.

State Administrative Tribunal WA, 2012, Tribunal Order (DR 139 2010) to Keysbrook Leucoxene Pty Ltd and Shire of Murray granting planning approval to commence development – Lot 59 Westcott Road, Lot 62 Hopelands Road and Lot 300 Atkins Road, North Dandalup.

State Administrative Tribunal WA, 2012, Tribunal Order (DR 151 2010) to Keysbrook Leucoxene Pty Ltd and Shire of Serpentine Jarrahdale granting planning approval to commence development for Lot 1 Elliot Road, Lot 52 Atkins Road, Lot 63 Hopeland Road and Lots 6, 111, 112 and 113 Westcott Road, Keysbrook.

State Administrative Tribunal WA, 2012, Tribunal Order (DR 173 2011) to Keysbrook Leucoxene Pty Ltd and Shire of Murray granting Extractive Industry Licence – Lot 59 Westcott Road, Lot 62 Hopeland Road and Lot 300 Atkins Road, North Dandalup.

State Administrative Tribunal WA, 2012, Tribunal Order (DR 226 2010) to Keysbrook Leucoxene Pty Ltd and Shire of Serpentine-Jarrahdale granting Extractive Industry Licence – Lot 1 Elliot Road, Lot 52 Atkins Road, Lot 63 Hopelands Road and Lots 6, 111, 112 and 113 Westcott Road, Keysbrook.

State Administrative Tribunal WA, 2012, Tribunal Order (DR 419 2010) to Keysbrook Leucoxene Pty Ltd and Shire of Serpentine Jarrahdale by consent of the parties that condition E4 of the granted planning approval is deleted.

Western Australian Planning Commission, 2011, Approval to Commence Development – Lanstal Pty Ltd 56 Kings Park Road, West Perth WA 6005 and Thorndale Pty Ltd PO Box 111 North Dandalup WA 6207 – Lots 59, 62 and 300.

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SRK Consulting Distribution Record


SRK Report Client Distribution Record

Project Number: MZI001

Report Title: Technical Assessment – Keysbrook Mineral Sands Deposit

Date Issued: 6 May 2014

Name/Title Company

Keith Vuleta MZI Resources Ltd

Rev No. Date Revised By Revision Details

1 17 January 2014 Simon Hanrahan Report

2 22 January 2014 Anthony Stepcich Final Report

3 23 April 2014 Anthony Stepcich Updated Final Report



6 6 May 2014 Anthony Stepcich Updated Final Report

This Report is protected by copyright vested in SRK Consulting (Australasia) Pty Ltd. It may not be

reproduced or transmitted in any form or by any means whatsoever to any person without the written

permission of the copyright holder, SRK.

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Page 28 of 30

A N N E X U R E C – T E R M S A N D C O N D I T I O N S O F R C F O P T I O N S

The Options entitle the holder to subscribe for Shares on the following terms and conditions:

(a) Each Option gives the Option holder the right to subscribe for one Share.

(b) The Options will expire at 5.00pm (WST) on the date that is 3 years after their date of issue (Expiry Date). Any Option not exercised before the Expiry Date will automatically lapse on the Expiry Date.

(c) The amount payable upon exercise of each Option will be $0.01648 (Exercise Price).

(d) The Options held by each Option holder may be exercised in whole or in part, and if exercised in part, multiples of 1,000 must be exercised on each occasion.

(e) An Option holder may exercise their Options by lodging with the Company, before the Expiry Date:

(i) a written notice of exercise of Options specifying the number of Options being exercised; and

(ii) a cheque or electronic funds transfer for the Exercise Price for the number of Options being exercised,

(Exercise Notice).

(f) An Exercise Notice is only effective when the Company has received the full amount of the Exercise Price in cleared funds.

(g) Within 10 Business Days of receipt of the Exercise Notice accompanied by the Exercise Price, the Company will allot the number of Shares required under these terms and conditions in respect of the number of Options specified in the Exercise Notice.

(h) The Options are transferable.

(i) All Shares issued upon the exercise of Options will upon issue rank pari passu in all respects with other Shares.

(j) The Company will not apply for quotation of the Options on ASX.

(k) If at any time the issued capital of the Company is reconstructed, all rights of an Option holder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

(l) There are no participating rights or entitlements inherent in the Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Option holders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue.

(m) An Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Option can be exercised.

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Page 29 of 30

A N N E X U R E D – T E R M S A N D C O N D I T I O N S O F N E D O P T I O N S

The Options entitle the holder to subscribe for Shares on the following terms and conditions:

(a) Each Option gives the Option holder the right to subscribe for one Share.

(b) The Options will expire at 5.00pm (WST) on the date that is 3 years after their date of issue (Expiry Date). Any Option not exercised before the Expiry Date will automatically lapse on the Expiry Date.

(c) The amount payable upon exercise of each Option will be $0.02 (Exercise Price).

(d) The Options held by each Option holder may be exercised in whole or in part, and if exercised in part, multiples of 1,000 must be exercised on each occasion.

(e) An Option holder may exercise their Options by lodging with the Company, before the Expiry Date:

(i) a written notice of exercise of Options specifying the number of Options being exercised; and

(ii) a cheque or electronic funds transfer for the Exercise Price for the number of Options being exercised,

(Exercise Notice).

(f) An Exercise Notice is only effective when the Company has received the full amount of the Exercise Price in cleared funds.

(g) Within 10 Business Days of receipt of the Exercise Notice accompanied by the Exercise Price, the Company will allot the number of Shares required under these terms and conditions in respect of the number of Options specified in the Exercise Notice.

(h) The Options are not transferable.

(i) All Shares issued upon the exercise of Options will upon issue rank pari passu in all respects with other Shares.

(j) The Company will not apply for quotation of the Options on ASX.

(k) If at any time the issued capital of the Company is reconstructed, all rights of an Option holder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

(l) There are no participating rights or entitlements inherent in the Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Option holders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue.

(m) An Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Option can be exercised.

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Page 30 of 30

A N N E X U R E E – V A L U A T I O N O F N E D O P T I O N S

It is an ASIC requirement that a dollar value is placed on the NED Options to be issued to Messrs Randall and Wong. The Black-Scholes option valuation methodology is generally regarded as acceptable as a valuation model which is designed to value ASX quoted securities that are freely tradeable on ASX. In establishing a valuation for present purposes, no discount was applied in the valuation to reflect the unquoted status of the NED Options. However, Shareholders should be aware that the market value of an unlisted security is arguably less than a listed security.

In determining the value of the NED Options set out below, the Company is required to disclose the following assumptions that have been made:

(a) a Share price of $0.0124 is used, based on the Company’s 5 day volume weighted average share price on 28 April 2014;

(b) the exercise price of the NED Options to be issued is $0.02 per Share;

(c) price volatility of the Company’s Shares is approximately 99.4%;

(d) the average current risk free interest rate is 3.0%; and

(e) all the relevant Options will be exercised immediately prior to their expiry date (being 5PM WST on the date that is 3 years after date of issue).

Based on these assumptions, and using the Black-Scholes option valuation methodology, the Company estimates that the NED Options to be issued to each of Messrs Randall and Wong are valued at approximately $0.0066 each. Using that valuation, the amount of the financial benefit to be given to each of them is:

Director Number of Options Valuation Price Valuation Total

Mr Malcolm Randall 5,000,000 $0.0066 $33,000

Mr Nathan Wong 3,000,000 $0.0066 $19,800

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SRN/HIN: I9999999999

Lodge your vote:Online:www.investorvote.com.au

By Mail:Computershare Investor Services Pty LimitedGPO Box 242 MelbourneVictoria 3001 Australia

Alternatively you can fax your form to(within Australia) 1800 783 447(outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only(custodians) www.intermediaryonline.com

For all enquiries call:(within Australia) 1300 763 480(outside Australia) +61 3 9415 4858

Proxy Form

For your vote to be effective it must be received by 10:00am Wednesday, 25 June 2014

How to Vote on Items of BusinessAll your securities will be voted in accordance with your directions.

Appointment of ProxyVoting 100% of your holding: Direct your proxy how to vote bymarking one of the boxes opposite each item of business. If you donot mark a box your proxy may vote as they choose. If you markmore than one box on an item your vote will be invalid on that item.

Voting a portion of your holding: Indicate a portion of yourvoting rights by inserting the percentage or number of securitiesyou wish to vote in the For, Against or Abstain box or boxes. Thesum of the votes cast must not exceed your voting entitlement or100%.

Appointing a second proxy: You are entitled to appoint up to twoproxies to attend the meeting and vote on a poll. If you appoint twoproxies you must specify the percentage of votes or number ofsecurities for each proxy, otherwise each proxy may exercise half ofthe votes. When appointing a second proxy write both names andthe percentage of votes or number of securities for each in Step 1overleaf.

Signing Instructions for Postal FormsIndividual: Where the holding is in one name, the securityholdermust sign.Joint Holding: Where the holding is in more than one name, all ofthe securityholders should sign.Power of Attorney: If you have not already lodged the Power ofAttorney with the registry, please attach a certified photocopy of thePower of Attorney to this form when you return it.Companies: Where the company has a Sole Director who is alsothe Sole Company Secretary, this form must be signed by thatperson. If the company (pursuant to section 204A of the CorporationsAct 2001) does not have a Company Secretary, a Sole Director canalso sign alone. Otherwise this form must be signed by a Directorjointly with either another Director or a Company Secretary. Pleasesign in the appropriate place to indicate the office held. Delete titlesas applicable.

Attending the MeetingBring this form to assist registration. If a representative of a corporatesecurityholder or proxy is to attend the meeting you will need toprovide the appropriate “Certificate of Appointment of CorporateRepresentative” prior to admission. A form of the certificate may beobtained from Computershare or online at www.investorcentre.comunder the help tab, "Printable Forms".

Comments & Questions: If you have any comments or questionsfor the company, please write them on a separate sheet of paper andreturn with this form.

GO ONLINE TO VOTE, or turn over to complete the form

A proxy need not be a securityholder of the Company.

MZI Resources LtdABN 52 077 221 722

Control Number: 999999

PIN: 99999

Go to www.investorvote.com.au or scan the QR Code with your mobile device. Follow the instructions on the secure website to vote.

Vote online

Your access information that you will need to vote:

PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

T 000001 000 MZI

MR SAM SAMPLEFLAT 123123 SAMPLE STREETTHE SAMPLE HILLSAMPLE ESTATESAMPLEVILLE VIC 3030

Samples/000001/000001/i

*S000001Q01*

SAM

PLE

ONLY

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I 9999999999

I/We acknowledge that the Chairman of the Meeting may exercise my/our proxy even if the Chairman has an interest in the outcome ofResolution 6 and that votes cast by the Chairman, other than as proxy holder, would be disregarded because of that interest.

Important for Resolution 6: If the Chairman of the Meeting is your proxy and you have not directed the Chairman how to vote on Resolution 6 below, please mark the box in this section. If you do not mark this box and you have not otherwise directed your proxy how to vote onResolution 6, the Chairman of the Meeting will not cast your votes on Resolution 6 and your votes will not be counted in computing the requiredmajority if a poll is called on this Resolution. The Chairman of the Meeting intends to vote undirected proxies in favour of Resolution 6 ofbusiness.

Change of address. If incorrect,mark this box and make thecorrection in the space to the left.Securityholders sponsored by abroker (reference numbercommences with ’X’) should adviseyour broker of any changes.

Proxy Form Please mark to indicate your directions

Appoint a Proxy to Vote on Your BehalfI/We being a member/s of MZI Resources Ltd hereby appoint

STEP 1

the ChairmanOR

PLEASE NOTE: Leave this box blank ifyou have selected the Chairman of theMeeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxyto act generally at the Meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, andto the extent permitted by law, as the proxy sees fit) at the General Meeting of MZI Resources Ltd to be held at the City West Reception Centre,45 Plaistowe Mews, West Perth, Western Australia on Friday, 27 June 2014 at 10:00am (WST) and at any adjournment or postponement of thatMeeting.Chairman authorised to exercise undirected proxies on remuneration related resolutions: Where I/we have appointed the Chairman ofthe Meeting as my/our proxy (or the Chairman becomes my/our proxy by default), I/we expressly authorise the Chairman to exercise my/ourproxy on Resolutions 4, 5, 6 and 7 (except where I/we have indicated a different voting intention below) even though Resolutions 4, 5, 6 and 7are connected directly or indirectly with the remuneration of a member of key management personnel, which includes the Chairman.Important Note: For Resolution 6 this express authority is also subject to you marking the box in the section below.If the Chairman of the Meeting is (or becomes) your proxy you can direct the Chairman to vote for or against or abstain from voting onResolutions 4, 5, 6 and 7 by marking the appropriate box in step 2 below.

STEP 2 Items of Business PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on yourbehalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

SIGN Signature of Securityholder(s) This section must be completed.Individual or Securityholder 1 Securityholder 2 Securityholder 3

Sole Director and Sole Company Secretary Director Director/Company Secretary

ContactName

ContactDaytimeTelephone Date

The Chairman of the Meeting intends to vote all available proxies in favour of each item of business.

of the Meeting

I ND

M Z I 9 9 9 9 9 9 A

MR SAM SAMPLEFLAT 123123 SAMPLE STREETTHE SAMPLE HILLSAMPLE ESTATESAMPLEVILLE VIC 3030

/ /

XX

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Resolution 1 Approval of Funding Package with Resource Capital Fund VI L.P.

Resolution 2 Approval to Convert Portion of RCF Interim Loan Facility into Shares

Resolution 3 Approval to Issue Shares to RCF in Payment of Extension Fees

Resolution 4 Issue of Share Units to Peter Gazzard under the Employee Share Trust Plan

Resolution 5 Issue of Share Units to Keith Vuleta under the Employee Share Trust Plan

Resolution 6 Issue of NED Options to Malcolm Randall

Resolution 7 Issue of NED Options to Chi To (Nathan) Wong

SAM

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